Will 2015 Finally Be the Year of the Drone?

By Travis HoiumFool.com

Drones have been a headline-grabbing topic for a couple of years now, but few companies have translated that hype into actual drone sales. In fact, very few companies are even approved to fly commercial drone flights.

Amazon.com , which brought attention to drones in a 60 Minutes piece last year, has been petitioning the FAA for approval to do commercial test flights, but to no avail. Realtors, too, have been grounded from using drones to film homes for commercial purposes.

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But 2015 could be a turning point for the drone industry. The FAA is getting closer to formulating regulationsabout flying commercial drones and has been approving more companies to fly missions on a limited basis. Before the year is out, we may see some winners begin to emerge.

Drones have grown in popularity as hobby items, and DJI's Phantom line is one of the companies leading the way. Image source: DJI.

The FAA's slow acceptance of drones Slowly, the FAA is starting to allow drones to be used for commercial purposes. ConocoPhillips was approved to fly over-water missions in 2013, followed in June 2014 by BP and Aerovironment being approved to fly missions over land in Alaska. In September, six filmmaking companies were approved to use drones on a limited basis.

December included four approvals for oil and gas surveying, monitoring construction, and mapping purposes. The next step is broad rules from the FAA, which are due in September of this year. If they come out on time, there could be a boom in drone activity in the U.S. in late 2015.

A worker launches an Aerovironment drone running missions for BP in Alaska. Image source: Aerovironment.

A multibillion-dollar market Drones for military use are already big business, but commercial drones will open up billions more in potential spending. BI Intelligence estimates that 12% of an estimated $98 billion spent on drones in the next decade will be in the commercial market.

But drones probably won't be used where you might think. Amazon's dream of delivering packages via drone would involve overcoming major technical challenges to prevent drones from hitting one another, power lines, vehicles, and people, not to mention the risk of crashing and hurting someone. Instead, drones will be used in more remote locations for surveying and monitoring.

We've seen this in the commercial drone approvals, which include a number of oil and gas drilling applications. Drones will also expand to farming applications, construction, and security applications, which won't come with the same human risk as something like home package delivery.

Small drones could also be used by local police. Image source: Aerovironment.

Who will win the future of drones? Companies like Parrot and DJI, which make inexpensive hobby drones, have gained significant share in the early drone market, but in a more regulated market they will have to adjust technology to stay competitive. The FAA is concerned about drone safety, including potential crashes, which will require more sophisticated electronics then hobby drones contain today.

Two companies making an investment in this space are Aerovironmentand Boeing , through its subsidiary, Insitu.

Aerovironment is a leader in small drones that can be launched by hand. It's already a leader in this space for military applications and was the first company to be licensed to fly commercial missions over land.

Insitu makes much larger drones that are currently being tested in over-water missions. It was actually approved before Aerovironment but was limited to oil and gas missions over water off the coast of Alaska.

As drone regulations are released by the FAA, I think Aerovironment and Boeing will be two of the first to be approved to fly expanded missions and will play a big role in how regulations are written. That bodes well for their long-term future in the nascent drone market.

The article Will 2015 Finally Be the Year of the Drone? originally appeared on Fool.com.

Travis Hoium owns shares of AeroVironment. The Motley Fool recommends and owns shares of AeroVironment and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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