Supply Chain and Contract Risks Shadow Orbital’s UAV Growth Strategy
Orbital Corporation reveals a strategic pivot amid evolving US drone policies, with a new management team driving growth beyond Boeing Insitu. FY25 guidance shows revenue decline but promising new contracts.
- Orbital supplies patented heavy fuel propulsion systems for Group 2 & 3 UAVs
- FY24 revenue at $8.2M with a $6.2M order book; FY25 revenue expected to decline due to Boeing Insitu deliveries
- New US Drone Dominance Policy mandates domestic UAV production, benefiting Orbital’s US manufacturing capability
- Business transformation underway with expanded go-to-market strategy including mission-ready engines and in-service support
- Risks include reliance on key contracts, supply chain vulnerabilities, and foreign exchange exposure
Orbital’s Niche in UAV Propulsion
Orbital Corporation Limited continues to carve out a specialized role in the aerospace sector, focusing on propulsion systems for Group 2 and 3 unmanned aerial vehicles (UAVs). These UAVs, weighing up to 600kg with wingspans reaching 10 meters, are primarily used for surveillance and reconnaissance missions requiring extended flight endurance, up to 12 hours at altitudes of 20,000 feet. Orbital’s proprietary technology, featuring 30 patents with an average remaining life of 12 years, centers on heavy fuel direct air injection engines that outperform gasoline counterparts in reliability and efficiency at high altitudes.
Unlike battery-powered alternatives, Orbital’s heavy fuel engines meet the stringent demands of military operations, aligning with the single fuel policy mandated by defense agencies. The company’s propulsion systems have logged over 1.2 million flight hours in military service, underscoring their operational credibility.
Financial Performance and Market Dynamics
Orbital reported FY24 revenues of $8.2 million with a current order book of $6.2 million. However, FY25 guidance anticipates a revenue decline to $8.23 million, primarily due to a reduction in deliveries to Boeing Insitu, a key customer that accounted for approximately 70% of revenue in FY24. The company delivered 78 engines to Boeing Insitu in FY24 but none in FY25, offset partially by 53 engines supplied to new programs with DSO National Laboratories (Singapore) and FIPL (Vietnam).
This shift reflects Orbital’s strategic diversification as it seeks to reduce dependency on any single customer and expand its footprint across the US, South-East Asia, India, and Europe. The company is also navigating the uncertainty surrounding the US Department of Defense’s procurement timetable under the new Drone Dominance Policy.
Capitalizing on the US Drone Dominance Policy
The US Drone Dominance Policy, enacted in June 2025, mandates domestic UAV production, expands commercial beyond visual line of sight (BVLOS) operations, and enforces secure supply chains by banning adversary-state vendors. Backed by $150 billion in funding through 2032, this policy unlocks significant demand across defense and commercial UAV segments.
Orbital is well positioned to capitalize on this policy shift. Its US manufacturing facility, though currently mothballed, can be reactivated to meet local content requirements. The company’s existing Tier 1 OEM military customers, including Boeing subsidiary Insitu and Textron Systems, provide a strong foundation for early contract awards and long-term growth aligned with Blue UAS compliance.
Business Transformation and Growth Strategy
To support this transformation, Orbital is undertaking a placement to fund business development in the US and Europe, enhance internal manufacturing capabilities, and upgrade production and testing facilities. The company is also leveraging available defense industry grants to offset investment costs.
Risks and Challenges Ahead
Despite promising prospects, Orbital faces several risks. The company’s historical reliance on Boeing Insitu highlights the vulnerability of key contract dependencies. Supply chain risks persist, especially given the specialized nature of components and single-source suppliers. Foreign exchange exposure, particularly between the US dollar and Australian dollar, adds financial volatility.
Moreover, the competitive aerospace landscape demands continuous innovation to maintain technological edge. Regulatory compliance, intellectual property protection, and the timing of US Department of Defense procurement decisions remain critical uncertainties that could impact Orbital’s trajectory.
Bottom Line?
Orbital’s next chapter hinges on navigating US defense policy shifts and securing new contracts to offset legacy customer declines.
Questions in the middle?
- How will Orbital’s US manufacturing facility ramp up to meet new local content requirements?
- What is the timeline and likelihood of securing major contracts under the US Drone Dominance Policy?
- How effectively can Orbital diversify its customer base to reduce reliance on Boeing Insitu?