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Unmanned upstart: Kratos casts off its cloak

Date Posted: 24-Aug-2016
Author: Richard Scott, London
Publication: Jane's International Defence Review
Key Points

The Unmanned Systems Division of Kratos Defense and Security Solutions is leveraging
its pedigree in target drones to pursue new opportunities in the tactical UAS market

UTAP-22 has been developed as a low-cost, high performance UCAS 'force multiplier' able
to operate and survive in A2/AD environments
In July 2016 the US Air Force Research Laboratory (AFRL) contracted the Unmanned Systems
Division of Kratos Defense and Security Solutions to deliver a technology demonstration effort
intended to prototype a totally new class of high-speed, long-range, low-cost, limited-life, strike
unmanned aircraft system (UAS).

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Another display board showing the manned/unmanned teaming of an F-35 aircraft with a number
of UTAP-22 UCAS vehicles. Kratos has characterised UTAP-22 as an 'unmanned wingman', and
believes it offers an inexpensive force multiplier. (Richard Scott/NAVYPIX)
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The AFRL's selection of Kratos over six other competitors - including some of the biggest names
in US defence aerospace - to deliver the so-called Low-Cost Attritable Strike UAS Demonstration
(LCASD) reaffirmed the emergence of a new and dynamic player in the tactical UAS market. It
also continued a sequence of strategically important contracts for Kratos, following on from one of
four Phase 1 contracts for the Defence Advanced Research Projects Agency's (DARPA's)
Gremlins programme; an as yet undisclosed "high-performance tactical UAS opportunity" secured
in the first half of 2016; and another 'confidential UAS contract' that should start production in
2017.
Another tangible demonstration of Kratos' ambitions emerged in late 2015 when the company
performed three flight-test demonstrations of its self-funded UTAP-22 unmanned combat aircraft
system (UCAS). Subsequently revealed to be an advanced derivative of the company's BQM167A target drone, UTAP-22 has been groomed as an essentially off-the-shelf UCAS 'force
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multiplier' available to meet near-term tactical needs in anti-access/area denial (A2/AD)
environments.
Until recently, Kratos has maintained near silence on its tactical UAS activities. Corporate
statements were vague as to the detail of programme captures and opportunities, not helped by
the fact that Kratos is barred from discussing some of its contracts and customers. The only clue
was a banner on its corporate website that spoke of a business "leading the way into the emerging
market of unmanned combat systems that can effectively operate in contested and/or denied
airspace environments".
However, during last 12 months have Kratos has gone some way to lifting the cloak of secrecy that
previously shrouded its UAS endeavours. According to Jeff Herro, senior vice-president - business
development for the company's Unmanned Systems Division, this foray into the high-performance
tactical UAS sector is no sudden whim for a company best known for its pedigree in aerial targets,
but rather the realisation of ambitions dating back more than 15 years.
Herro has been around targets for much of his career, running programmes for Tracor and
subsequently BAE Systems. In 2000 he left to join Composite Engineering Inc (CEi), a
small/medium-size enterprise based in Sacramento, California.
"At CEi we set out to build the next generation of high performance airborne targets," he told IHS
Jane's . "At the same time we saw an upcoming gap [in the market] for survivable and affordable
tactical unmanned air vehicles. None of today's systems are survivable in contested airspace.
"But we knew from the get-go that we could not go head-to-head with the [established] tactical
UAV guys."
So CEi first focused on becoming the leader in airborne targets, building a portfolio of systems and
also developing its own turnkey target services business. Initial success came in July 2002 when
the company secured the Air Force Subscale Aerial Target (AFSAT) programme with its allcomposite Skeeter design, subsequently assigned the US Air Force (USAF) nomenclature BQM167A. The BQM-167A achieved initial operational capability in 2008; the USAF has exercised 12
production lot options to date.
Further success came in 2011 when CEi won the race to build the US Navy's (USN's) nextgeneration BQM-177A Subsonic Aerial Target (SSAT) system to replace legacy BQM-34S and
BQM-74E target drones. A much modified derivative of the BQM-167A, the BQM-177A has been
optimised for high-fidelity, sea-skimming anti-ship cruise missile threat emulation. Development is
now complete, with a first low rate initial production contract expected in late 2016/early 2017.
Rounding out the target portfolio is the smaller MQM-178 Firejet, which is being supplied to the US
Army. The Firejet was developed by to meet needs for a flexible, cost effective aerial target to fulfil
a variety of end-to-end weapons-release training roles, including surface-to-air and air-to-air.
In the space of a decade, CEi had succeeded in usurping long-established incumbents to become
the sole source provider of sub-scale aerial targets to both the USAF and USN. That success has
been gilded by international sales of the MQM-178 and exportable AFSAT and SSAT derivatives,
designated BQM-167i and BQM-177i respectively.
For Herro, building up CEi's targets business - it is now established as the world's leading target
drone producer - was always a stepping stone to bigger things. However, to go up to the next
level, and make an entry into the UAS market would require significant additional investment.
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That investment came with the acquisition of CEi by Kratos in July 2012. "Kratos was a company
we'd already worked with, and they were very interested in the targets business," Herro said.
"They also had the same vision for high performance, survivable and affordable tactical UAVs.
They have provided the investment resource necessary."
Kratos, a mid-tier supplier of products and services predominantly serving US defence and
national security customers, has subsequently put tactical UAS and UCAS front and centre of its
strategy for growth. The company's senior management has hitched its wagon to the US
Department of Defense's Third Offset Strategy, which has laid out the need for innovative and
'disruptive' technologies that can be rapidly developed to offset advantages or advances in
adversary A2/AD capabilities.
Having set out to plot onto previously uncharted space on the UAS cost/capability curve, Kratos is
banking on the rapid maturation of still embryonic requirements for low-cost, high-performance
UAS/UCAS systems able to survive in contested airspace. "The [US] government can't afford the
kinds of numbers of combat aircraft required to go up against near-peer adversaries," Herro
stated. "For us, this is a long-term move that we've been planning for a very long time. It is to
leverage our already high performance target drones to meet a mission need that is as yet
untapped.
"Our approach has been to be stealthy and agile," he added. "Now, the covers are off and we're in
the open. You only get to sneak up on folks a little. We're pretty well uncloaked now. People don't
wonder if we're serious anymore."

Kratos performed three flight tests of its UTAP-22 unmanned combat platform in late 2015. Testing
was performed at the US Navy's China Lake range; the navy identified key performance and
capability features to inform the demonstration objectives. (Kratos)
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This conviction that its target pedigree provides an entry point into the new world of tactical combat
UAS has led Kratos to invest significant amounts of capital in recent years, with consequent
effects on profitability and cash flow. It is making a bold move - and taking a commercial gamble to lay claim to a still nascent market segment.
According to Herro, Kratos's key differentiator is its ability to manufacture high performance,
attritable unmanned aircraft at low cost. "Target vehicles are inherently survivable because they
are designed to mimic enemy aircraft or missiles and employ complex high- g manoeuvres to
evade enemy defences," he explained. "What we have been able to do is bring the costs of
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production right down.
"A large part of that is the vertically integrated nature of the company. We build the airframe tip to
tail, and the avionics that go into our targets come from other Kratos companies. It is only the
powerplant and recovery parachutes that we buy in from third parties.
"Also, we don't design our targets like regular manned aircraft would be designed. For example,
the structure of a regular aircraft build requires a lot of component parts. But we build using
unibody construction, which drives both the labour and parts costs down."
He added, "Our targets already carry additional payloads such as chaff/flare dispensers, plume
pods, towed targets, scoring systems and electronic countermeasures. What we're doing now is
moving into a higher level of 'missionisation' with different payloads. That includes integration of
air-to-surface weapons and micro-munitions. We can't share exactly which systems we are looking
to, but we are in dialogue with several companies."

This display board, appearing at the Farnborough airshow in July 2016, shows how the turbojetpowered UTAP-22 Tornado UCAS has been derived from the BQM-167A target drone. (Richard
Scott/NAVYPIX)
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Another piece of the puzzle is command and control. In May 2016 Kratos revealed that it had
developed a proprietary collaborative communication system known as Wolf Pack. Eric DeMarco,
Kratos president and CEO, told an analysts brief that Wolf Pack "has to do with the command and
control of up to approximately a dozen drones at a time and how it's secure, how they can be truly
autonomous, how if some of them go down, others can replace them and replace their mission ...
we are under contract and we're demonstrating this right now. So it's our technological capability
on the command and control of unmanned aerial vehicles in swarms."
The development and demonstration of the UTAP-22 UCAS, latterly given the name Tornado, has
provided the most visible evidence of Kratos' ambitions to carve itself a niche in the sector. With
the support of the USN, the company ran three flight demonstrations at the service's China Lake
range in October, November and December 2015: the first verified network control and semiautonomous flight; the second, undertaken in conjunction with a US Marine Corps AV-8B Harrier
II, demonstrated tactically representative manned/unmanned teaming; and the third, in which two
UTAP-22 vehicles participated, proved multi-aircraft collaborative operations and semiautonomous payload deployment.

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"The navy co-operated with and supported the UTAP demonstrations, and provided some tactical
background as to what they would like to see demonstrated," said Herro. "They also provided the
aircraft to support the exercise, and the communications."
In a quarterly trading update released on 4 August, DeMarco reported that the company was "now
confident that UTAP-22 will be receiving [US] government funding either later this year or in 2017".

Kratos is one of four contractors in receipt of a Phase 1 contract for DARPA's Gremlins
programme. Shown here is a DARPA illustration of the Gremlins concept (DARPA)
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Furthermore, the UTAP-22 initiative has demonstrated Kratos' ability to leverage its targets
background and rapidly develop and prototype a high-performance, low-cost unmanned tactical
system: this positioned the company to successfully compete for both Gremlins and LCASD.
First announced by DARPA in 2015, the Gremlins programme is seeking to demonstrate the safe
and reliable aerial launch and recovery of a swarm of UASs capable of employing and recovering
diverse distributed payloads (60-120 lb [27.2 - 54.4 kg]) in 'volley' quantities. The concept
envisages the launch of a 20-strong UAS "swarm" from a C-130 aircraft, a 300 n miles transit to
the area of operations, one hour on station, a return transit of up to 300 n miles, and mid-air
recovery into the C-130.
The estimated price target for a Gremlin UAS is about USD700,000 per aircraft, excluding
payloads, for 1,000-unit order quantities once in production.
Kratos is one of four companies (the others being Lockheed Martin, General Atomics, and
Dynetics) in receipt of a Phase 1 award, receiving a USD3.87 million contract in late March 2016.
Under this initial contract, Kratos is performing system architecture and design studies to develop
a conceptual Gremlins system design, analysing aerial launch and aerial recovery methods,
refining operational concepts, and performing demonstration system design and planning for
potential future phases.
"We're executing Phase 1 right now," Herro said. "DARPA plans to award two Phase 2 contracts in
the first half of 2017, and we're hopeful that we will get one of those."
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Each Phase 2 preliminary system design contract will be worth approximately USD20 million.
Following a preliminary design review scheduled for the second quarter of 2018, DARPA plans to
downselect one team to receive a USD35 million Phase 3 contract. This will culminate in 2020 with
a flight test.
"We're working [Gremlins] hard from a strategic perspective," Herro said. "We are a prime for
Phase 1, and separately also a partner to one of the other Phase 1 performers. They represent
different technical approaches, but we're confident that both solutions will be a success."
Next to Gremlins, the other recent UAS contract success that Kratos is permitted to discuss is the
air force's LCASD demonstrator programme. The AFRL's objective is to establish a benchmark,
concluding in a flight demonstration, to test the bounds of what can be accomplished in the near
term to establish a baseline system cost against a notional set of strike vehicle requirements.
Alongside this, the programme will also identify essential enabling technologies for future low-cost
attritable aircraft demonstrations, and provide a vehicle for future capability and technology
demonstrations.
LCASD cost and capability goals set down by the AFRL include a unit acquisition cost of not more
than USD3 million for the first unit up to 99 units, and USD2 million or less for 100 or greater
volume purchases; a 1,500 n mile mission radius with a 500 lb payload; a dash speed of Mach 0.9;
and an internal weapons bay sized to carry and deliver at least two GBU-39 Small Diameter
Bombs.
Other objectives include a runway-independent take-off and landing capability; an emphasis on the
use of commercial off-the-shelf materials, subsystems, manufacturing processes, and open
mission system architecture concepts; and tactical consideration of vehicle shape, elimination of
gaps and mismatches, and aero-structural inlet integration.
Under a cost share arrangement with the AFRL, Kratos will contribute USD33.5 million of its own
funds over the approximate 30-month period of performance while the government is committing
USD7.3 million. That is not a bad deal according to Herro.
"You can almost see the future [in LCASD]," he said. "So for us it's an investment exercise. We
want the IP [intellectual property], so this will be a Kratos-owned product. The AFRL are not paying
for development, but they are paying for the demonstration and will take delivery of an asset.
"The upside is that the first man wins in a gig like this. The secret here is understanding the need,
and really understanding the customer community.
"There is also a lot of interest from AFRL to continue to develop the system. They are talking of
five technology spirals worth up to USD100 million."
While no details of the LCASD design have been released, Herro noted that the AFRL's range and
payload demands conditioned an air vehicle somewhat larger than a target vehicle. Also, while its
target drones use turbojet engines, Kratos will use a more fuel-efficient commercially available
turbofan for the demonstrator.
ANALYSIS

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Having set its sights on becoming a major player in the UAS market, the task now facing Kratos is
to start generating a return on its not inconsiderable discretionary investments.Financial analysts
have regularly expressed negative sentiment on the company's overall trading performance, its
large net debt, and weak cash position. However, Kratos management argues that recent
contracts wins, and reported growing interest in its UTAP-22 initiative, have left the company well
positioned to grow its UAS business.

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