International Association of Unmanned Vehicle Systems estimates
that small, commercial drones will create 70,000 jobs and have
an economic impact of more than $13.6 billion in the first three
years after their integration into U.S. skies.
Recently proposed commercial drone regulations constitute a
landmark step and promise to bring the U.S. closer to
realizing the benefits of drone technology. However, by
focusing on safety concerns, the draft rules raise obstacles
to some of the most anticipated potential uses of drones.
In this context, the U.S. drone industry must turn towards
innovation as a means to move forward despite the regulatory
limitations it might have to face. Federal R&D tax credits
are available to assist drone designers and manufacturers in
The Research &
Development Tax Credit
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13%
of eligible spending for new and improved products and
processes. Qualified research must meet the following four
New or improved products,
processes, or software
Technological in nature
Elimination of uncertainty
Process of experimentation
On December 18, 2015
President Obama signed the bill making the R&D Tax Credit
permanent. Beginning in 2016, the R&D credit can be
used to offset Alternative Minimum tax and startup businesses
can utilize the credit against $250,000 per year in payroll
FAA Proposed Rules
On February 15th, the Federal Aviation
Administration (FAA) presented its draft rules for commercial
drone flights. The proposed regulations constitute a
long-awaited starting point that should pave the way for
thousands of U.S. businesses to fly unmanned devices.
However, the agency’s rules raise obstacles to activities that
could represent some of the most innovative and lucrative
applications of drones, including package delivery.
FAA’s draft regulations require unmanned aircraft pilots to
obtain special pilot certificates, stay away from bystanders,
remain in the line of sight of the radio-control drone, and
fly only during the day. They limit flying speed to 100
miles per hour and the altitude to 500 feet above ground
In some aspects, the rules are less onerous than expected. For
instance, they do not require that commercial drone operators
attend a flight-training school and obtain a certification
similar to that of a manned aircraft pilot, which involves
medical tests and extensive flight hours.
Instead, it proposes that operators, who would need to be at
least 17 years old, pass an aeronautical knowledge test and be
vetted by the Transportation Security Administration. This
simplified certification process would benefit several
On the other hand, however, the proposed rules impose major
obstacles to certain drone applications. By establishing that
operators would have to keep drones within eyesight at all
times and prohibiting them to fly over people not involved in
the operation, the regulation significantly limits the
distance drones can actually fly.
In the words of Michael E. Drobac, executive director of the
Small Unmanned Aerial Vehicle Coalition, the requirement of
visual contact with the aircraft "means we really are not
talking about unmanned aerial vehicles. We are talking about
something that has to have a person. It defeats the whole
The FAA acknowledged the limitation and suggested that some of
these flights could be made possible with a secondary spotter
working with the pilot of the drone.
While the use of a second observer could work for short
distance flights, the delivery of packages with unmanned
aircrafts systems, which has long been envisioned by retailers
such as Amazon, would remain impossible.
The draft regulations, which spent several years in the
making, must undergo a process of public comment and revision
before becoming definitive. According to the FAA, the proposed
rules constitute a framework that will evolve based on a
dialogue with industry representatives and future
Safety Concerns and
the Role of R&D
The draft FAA rules have the primary
objective of maintaining the current level of aviation safety.
Major concerns include the fact that unmanned aircraft systems
have limited capacity to “see and avoid”. Additionally, the
connection between the operator and a drone can be broken,
causing the aircraft to fly away until it loses power or
collides with something.
Cases of flyaway drones hitting buildings or getting stuck in
trees have recently surged. Near-misses with passenger planes
have also caused great alarm. In 2014, the FAA received an
average of 25 reports per month of drones sighted flying near
manned aircrafts or airports.
The agency is open to reviewing and loosening its proposed
regulations as drone technology evolves. In this context,
R&D efforts aimed at enhancing safety in unmanned aerial
vehicles gain vital importance, particularly the development
of reliable sense-and-avoid mechanisms and highly autonomous
systems. Innovation and technological developments will pave
the way for the American drone industry to take off.
With huge growth prospects, the U.S. drone
industry faces an exciting future. Despite the regulatory
obstacles in the way, it must move as far forward as possible
in advancing commercial drone applications. The following
sections present four possible pathways into the new era of
Prescribed Exemptions and New Waiver Applications:
As of right now, the FAA has in place a near-ban on commercial
drone flights. However, exemptions have been issued under a
provision adopted by Congress in 2012. Under the so-called
Section 333, the agency can approve drone use for companies
capable of demonstrating the safety of the proposed
The first permit for an unmanned commercial aircraft to fly
over U.S. soil was issued in June 2014. The waiver authorized
the use of drones to survey oil company BP’s pipelines, roads,
and equipment at Prudhoe Bay, Alaska, the largest oil field in
In September 2014, six movie production companies were granted
waivers to use drones while filming scenes in the U.S. They
gained permission to fly small, unmanned aerial vehicles
carrying cameras on closed sets. These exemptions represented
a huge step for the film industry. Before then, companies
wanting to use drones had to do their shooting in other
In October 2014, waivers were granted for four industrial
companies - Trimble Navigation Ltd., VDOS Global LLC, Clayco
Inc. and Woolpert Inc. They sought to perform surveying,
construction site monitoring, and inspections of
petroleum-industry equipment using drones.
From January 6th to February 10th, 2015, the FAA granted more
authorizations than ever before. A total of sixteen waivers
were issued to a wide variety of purposes, including
agricultural analysis and precision agriculture,
high-resolution aerial imagery, bridge inspections, aerial
photography and filming, and real-estate photography and
Until the proposed regulations become final, FAA officials
plan to continue granting waivers on a case-by-case basis.
About 300 waiver requests are pending and new requests are
being submitted almost daily.
The recent surge in authorizations is great news for those
planning to file a petition under the Section 333 of the FAA
Modernization and Reform Act of 2012. In addition to
submitting a petition for exemption, candidates also need to
apply for and receive a civil Certificate of Waiver or
The petition for exemption must describe how the proposed
unmanned aircraft operation will be safely conducted to
minimize risks to the national airspace and to persons and
property on the ground. Additionally, it must describe the
procedures designed to ensure that the aircraft is in
condition for safe flight, which could consist of pre-flight
inspections, maintenance, and repair.
According to the FAA’s Section 333 Guidance petitioners should
allow at least 120 days for the processing and reviewing of
any exemption requests.
The FAA’s proposed rules represent a major step for the drone
industry as they pave the way for various commercial uses and,
consequently, open the door to a huge potential market.
Drones can lower costs, give access to data previously
unavailable, and provide a multitude of aerial images. They
constitute a revolutionary tool for the planning, operation,
and monitoring of projects.
Under the proposed regulations, several industries will be
able to benefit from drone technology. Construction companies,
for instance, can use unmanned aircrafts to map projects and
monitor progress with unprecedented accuracy. In real estate,
drones can be valuable marketing tools, as they provide
high-quality, aerial images of properties.
Agriculture is also a very promising market for drone
applications. The technology has become ubiquitous at farm
shows across the country and demand should grow considerably
under the proposed regulations.
Colorado-based drone startup Agribotix is already preparing
for the upcoming boom in agricultural uses of drones. Their
product is equipped with a camera that snaps a high-resolution
photo every two seconds. From there, the company stitches the
images together, sniffing out problem spots in the process.
Access to this sort of information can help farmers be more
proactive in fighting diseases and insects. It would also
enable precise, targeted treatments that focus on problematic
areas instead of the entire field.
The draft regulations would also favor the use of drones by
utilities and energy companies. Unmanned aircrafts would
reduce the costs and risks involved in certain utility
operations, particularly in the case of patrols and inspection
of high-voltage electric transmission lines, gas lines, and
Throughout the energy sector, drones could be used for
purposes such as inspecting wind turbine blades for defects,
detecting malfunctioning solar photovoltaic panels, scanning
of oil and gas pipelines for leaks and structural weaknesses,
and inspecting flare stacks at oil and gas operations.
Several other countries, including Canada, Denmark, and the
U.K., are more lenient with drone rules and already use them
for various commercial uses.
When it comes to package delivery, for instance, drones have
successfully - and safely - delivered all kinds of goods all
over the world.
Chinese e-commerce company Alibaba recently performed a
three-day trial of drones delivering ginger tea from its
Taobao online shopping site to customers in Beijing, Shanghai,
and Guangzhou. In Germany, DHL has used a drone called a
"parcelcopter" to deliver medicine and other goods to an
island in the North Sea.
In June 2014, a pizza shop in Russia started delivering its
orders by drones as a means of speeding up customer service.
Domino’s U.K. has also tested a similar service, using its
In a South African outdoor rock festival in August 2013,
drones were used to drop beers by parachutes. Customers placed
orders using a smartphone app, which registered the position
of users via GPS. Then, drones zoomed 50 feet above their
heads and made the delivery.
The American drone industry must capitalize on these
successful stories. International data proving the viability
of certain drone applications could play a decisive role in
persuading U.S. regulators into adopting more progressive
On February 17th, the Obama administration announced it would
begin allowing sales of military unmanned systems to some
friendly and allied countries. The policy change comes at the
end of a two-year review.
The newly published standards require “end-use assurances”
designed to make sure that armed drones will be used legally
Lockheed Martin, Raython, and Northrop Grumman are a few
examples of drone manufacturers that should benefit from the
expansion in overseas markets.
Figure 1 below illustrates some
of the drones now being integrated.
Drone Delivery and
FAA’s proposed rules limit many potential
drone applications, including package delivery. Meanwhile, the
American unmanned aircrafts industry lags behind international
competitors, which benefit from more tolerant regulatory
The burden of unfavorable regulation not only undermines
American competitiveness, but it sends innovation elsewhere.
Paul Misener, Amazon’s vice president for global public
policy, suggested that the company might launch its Prime Air
delivery service first in other countries with more
accommodating rules. “We are committed to realizing our vision
for Prime Air and are prepared to deploy where we have the
regulatory support we need,” he said.
Amazon Drone Initiative
Unfavorable regulation has also caused
drone development to outpace regulators. In March 2015,
Amazon received approval to test fly its delivery drones in
the U.S. however, that drone has since become obsolete for
Amazon. Paul Misener says, “We’ve moved on to more
advanced designs that we are already testing abroad”.
The FAA’s has
approval of outdoor testing for Amazon’s drones will allow
Amazon test their drones in a more realistic setting as
opposed to lab tests and help bring them closer to their 30
minute delivery initiative. Amazon’s drone testing will have
to abide by FAA’s guidelines which restricts testing over 400
feet and limits tests to the daytime. The FAA will also
require Amazon to provide a monthly report on conducted
flights, software malfunctions, and other data. In
addition, the FAA has proposed rules that would require
companies to operate drones only within eyesight.
An Open Dialogue
After years of a near-ban on commercial
drone flights, FAA’s proposed regulations are a long-needed
starting point. However, they raise significant obstacles to
some promising uses of drones, including package delivery.
Thankfully, the proposed rules are not definitive and will be
open for public commentary once published in the Federal
Register. It is crucial that those engaged in drone R&D
take part in this dialogue.
The U.S. drone industry must turn towards innovation as a
means to enhance the safety and autonomy of unmanned aircrafts
and persuade regulators of the viability of beyond eyesight
drone applications. Federal R&D tax credits can be a
strategic ally in assisting drone companies determined to move