Categories: ANALYTICS

The financial and tactical challenges of drone production during war

Yesterday, the President said that the state lacks funds for the production of long-range drones.

In fact, during wartime, and this is natural, the state lacks money for everything. The economy is almost non-functional, and there is a shortage of funds in the state treasury, so this limited resource must be managed effectively.

Firstly, we shouldn’t expect any “investments” in this context. An investor enters a business to make money. No one will invest in the production of disposable drones if the state does not have the funds to pay for them.

It is also very doubtful that anyone would invest in the development of Ukraine’s drone production base, hoping for future post-war profits from selling drones to other countries. No one knows when the “post-war” period will be, and the production could be bombed by the enemy at any time, rendering all investments useless.

Moreover, it’s unrealistic to believe that Ukrainian long-range drones created for this war will be competitive against future foreign drones developed for the post-war period, considering, among other factors, our own experience.

So, we need to rely on our own resources and funds. To obtain more long-range drones, we need to reduce their cost. This can only be achieved through mass production of one, two, or at most three drone models across many enterprises under license. This way, the cost of components will decrease with large-volume purchases, the price of Ukrainian components will drop, and costs for man-hours, administrative expenses, and others will be reduced as well.

For example, during World War II, the cost of the German V-1 flying bomb decreased from 10,000 Reichsmarks to 3,500 Reichsmarks in one year due to mass production of over 20,000 units. The most produced transport ship of the war, the Liberty ship, initially cost $1.5 million, but by the end of the war, its production cost dropped to $700,000.

As we can see, prices can decrease by half or even a third due to large-scale production. This reduction is achieved through decreased costs for imported components and materials (by about 25%), as well as reductions in office and administrative costs (probably also by 25%).

The greatest price reduction can come from the mass production itself. Today, drone manufacturers (not only long-range ones) have to include not just a 25% profit margin in the price, but also cover production maintenance, developer team costs, office expenses, and downtime costs because the state places orders irregularly and for limited numbers of drones.

Where else can we find reserves for reducing the cost of drones? In the minds of our high-ranking officials. Just like ordinary citizens, our high-ranking officials, with rare exceptions, have very limited knowledge of drones and their tactical use. This leads to costly and unfortunate mistakes.

Many believe that a “good” long-range drone must carry a substantial payload (at least 50 kg, not to mention the smaller ones) over a great distance. However, such drones are often as large as light aircraft, are easily detected by radar, are visually noticeable, easy to shoot down, and are prohibitively expensive because manufacturers try to include all possible systems and devices in such a large apparatus. Moreover, the price of these “monsters” is often driven by “politics”—if a high-ranking official wants to buy large drones, they will be purchased at any cost.

Certainly, different drones are needed with varying payload capacities and ranges. For instance, to deliver a significant blow to an oil refinery, a drone manufacturing plant, or an enemy missile depot, powerful and expensive drones are required, which could be made twice as cheap through mass production.

However, for attacking enemy aircraft at airfields, air defense systems, or even to expend a drone against an anti-aircraft missile (to reduce enemy air defense), small, low-profile, and inexpensive drones costing $5,000-15,000 can be highly effective. These drones can carry out their missions efficiently, destroying scarce and expensive enemy bombers and reducing the number of guided bombs.

So, think about it.

Yuriy Kasianov