Can the UAS Market Leverage Commercial Financing Models for Drone Operations?
For nearly 50 years, Unmanned Aerial Systems have transformed intelligence gathering, improving the strategic situational awareness of military and national security authorities. Initially, such capabilities were available only to a few countries having access to the technology. Today, with the proliferation of UAS technology, more nations can obtain drones or lease such systems to meet their operational needs.
As the pioneer of UAS technology Israel Aerospace Industries (IAI) embarked on UAS leasing in the mid-1990s, providing the Israel Air Force with services of UAVs it had in storage. This innovative service proved highly successful, paving the way for many orders in Israel and abroad. A few years later, IAI became the leading international UAS operator in Afghanistan, supporting coalition forces with Searcher and Heron UAS leased to Canada, Australia, Spain, and Germany.
Since then, Berlin continued leasing Heron to support the US-led coalition operations in Afghanistan and, in 2016 deployed the drones in support of UN peacekeeping forces in Africa. Building on this long-term successful experience, the German Ministry of Defense and Airbus DS Airborne Solutions have signed a $600 million contract nine-year lease of IAI’s most advanced Heron TP drones.
With leasing agreements, customers can leverage operational and financial flexibility and obtain the most advanced systems available while minimizing developmental risks. For example, the German variant of Heron TP was developed by IAI and Airbus to meet the German military certification requirement (STANAG 4671), which includes flying in icing conditions and improved all-weather operations. The most recent leasing announced by IAI calls for the operation of two brand new Heron MK II UAVs and associated mission payloads by a customer in central Asia. This deal also included a third system for its air force.
Operational and Financial Flexibility
On average, contracts often span over three to five years, with options to extend or expand services by demand. In some cases, leasing is considered as an intermediate step toward buying new systems. While other assets are operated as services under lease for years.
The flexibility of leasing agreements is demonstrated by the recent contracts between Greece and Israel and the European border security agency FRONTEX. The contract with Greece introduces a lease-buy option. Under this contract, Israel MOD will lease IAI’s Maritime Herons to Greece for three years, with an option to purchase the system upon completion of the leasing period.
These Maritime Herons have day and night reconnaissance systems, maritime patrol radars, and satellite communications. They are used for maritime patrol, marine and land border protection, search and rescue, disaster management, and more.
The leasing of Heron UAS by FRONTEX is worth tens of millions of Euros. Under this contract signed with IAI and Airbus, FRONTEX pays for operational flight hours. The program has the flexibility to operate from multiple sites. Contracts covering the first operating bases in Malta and Greece were signed in 2021, funding the aircraft and associated ground segment at each site.
Other leasing agreements were signed directly with Greece in 2021. In the two years that followed, two aircraft successfully flew over 3,000 operational hours. Operating under the Hellenic Air Force command, the Herons provided essential situational awareness of activities along the land borders and maritime domain awareness of the East Mediterranean. The drones were also instrumental in monitoring the devastating wildfires during the 2021 season.
FRONTEX selection of IAI’s Maritime Heron enabled the organization to leverage many sensors operated on manned aircraft, such as Elta Systems’ ELM2022 maritime surveillance radar and Automated Identification System (AIS) devices, tracking ships on their route at sea, and High Definition Electro-Optical payloads for identification and recognition of vessels and other targets detected by the radar and other sensors. Eventually, IAI’s unique ‘Long Runner’ capability that enables the Maritime Heron to land and take off from remote locations without preparations, could be utilized to address new missions defined by FRONTEX.
Until now, leasing programs covered mainly strategic missions and large UAS. However, leasing of smaller drones can be realized for organizations seeking to harness these new capabilities as a service, rather than a liability. To pursue such opportunities IAI is offering its BirdEye 650D, Small Tactical UAS to provide surveillance and security of borderlines, oil and gas pipelines or offshore facilities.
At the time, leasing enabled UAS operators to avoid big up-front investment in procurement, training and manufacturer support required for the new operations. Today, lessors and operators realize the operational agility and scalability, while reserving other systems at high readiness level for emergency and wartime operations.
