Why Is America Losing the Commercial Drone Wars?

For years, lobbyists and conservatives have managed to wrap regulatory agencies in ever more procedural red tape. Now those restrictions are hamstringing what ought to be a sprinting American industry.

If the dictionary had an entry for “classic tech start-up,” the company Airware could be the featured illustration. It certainly has all the requisite qualities. Founded by MIT graduates? Check. Given early-stage funding by prominent venture capital firms? Check. Operates out of an airy loft in San Francisco’s SoMa neighborhood? Check. Makes hard-to-describe products for a nascent, potentially huge industry most people are only vaguely aware of? Check.

Airware is in the commercial drone business—remotely piloted aircraft, typically equipped with cameras, that can potentially be used for everything from inspecting bridges to delivering packages. The company’s eighty employees don’t make the drones themselves, but develop the hardware and software used in them—“GPS, actuator interfaces, payload interfaces, onboard computing, datelines, ground control system software, configuration tools,” explains (sort of) Jesse Kallman, Airware’s head of business development.

Airware is one of hundreds of companies, large and small, that comprise a commercial drone industry that racked up $609 million in sales last year. That market could approach $5 billion by 2021, according to WinterGreen, a research firm.

That’s just the drone industry itself. The technology’s greater potential impact is on businesses doing the buying. Oil and gas companies are eyeing drones as a way to economically inspect thousands of miles of pipelines. Electric utilities see similar uses for the nation’s complex (and aging) grid of high-tension lines and towers. Filmmakers love the idea of replacing camera-equipped helicopters with cheaper, more flexible drones.

But perhaps the most important immediate application is agriculture. Drones could “provide detailed scouting information on weed emergence, insect infestations, and potential nutrient shortages,” Jeff Vanderwerff of the American Farm Bureau Federation told the U.S. Senate this spring. This valuable information allows the farmer to catch these threats “before they develop into significant and catastrophic problems.” Down the road, drones could also enable so-called field-based phenotyping. This involves flying drones over test fields and taking images of experimental varieties of crops designed to, say, build more biomass or thrive in the heavy-rains-followed-by-drought conditions that climate change is causing. Plant geneticists would then analyze the data from the drones to see which tweaks they’ve made to the plants’ DNA actually work best under real-life conditions. This, in theory, could dramatically speed up the process and lower the cost of developing new and better crop strains. “Maybe ‘Holy Grail’ is overstating it,” says Sam Fiorello, CEO of the Donald Danforth Plant Science Center in St. Louis, which provides cutting-edge research for AgTech startups, “but it’s a huge advance in plant research.”

Commercial drones, then, could be a fundamental technology driving innovation and growth in coming years. As the world’s traditional leader in aviation technology (and, for better or worse, the world’s foremost military drone pioneer), the U.S. ought to command this industry.

There’s only one hitch: companies like Airware can’t sell many of their products in the U.S. That’s because the Federal Aviation Administration (FAA) has been slow to write the regulations drone makers need to test and operate in U.S. airspace. This past February, after years of missed deadlines, the FAA finally published a draft version of regulations for small drones—a notice of proposed rulemaking (NPRM), in Washington argot. The finished version of the rule probably won’t be ready until late 2016 or early 2017, according to the Government Accountability Office. Meanwhile, countries such as the UK, France, Switzerland, Australia, New Zealand, and Japan have had rules for testing and using drones on the books for several years—rules significantly less restrictive than those in the FAA’s recent NPRM.

As a result, American firms are being lured abroad by the more flexible regulatory frameworks of foreign governments. Google is testing package delivery drone technology in Australia. Amazon is doing the same in Canada. Airware is busy selling its products to drone companies in Australia and Europe. Meanwhile, a company called DJI, based in Shenzhen, China, now dominates the world market for smaller, lower-cost commercial drones.

The business press and tech websites are filled with stories slamming the FAA’s tardy and constricted regulations. It seems like a classic example of incompetent federal bureaucracy getting in the way of economic progress. Conservatives certainly see it that way. “The FAA is failing big time,” writes Marc Scribner, a fellow with the Competitive Enterprise Institute, because the agency is “mired in its own bureaucracy.” “The FAA is adopting a hyper-precautionary principle position that is holding back innovation,” Adam Thierer, a fellow at the libertarian Mercatus Center at George Mason University, has written.

Of course, there’s good reason to be careful and deliberate when it comes to easing restrictions on commercial drones. Nobody wants unmanned aircraft snooping through bedroom windows or getting sucked into jet engines. Still, conservative critics have a point. Other advanced countries have already found ways to allow this industry to grow, with no notable safety problems so far. Why is the FAA lagging?

A big part of the answer has to do with changes in the rulemaking process that conservatives themselves have helped bring about. Since at least the 1970s, right-leaning think tanks and the corporate lobbying community have been relentlessly propounding the message that regulation is suffocating the U.S. economy. Many on the left, worried about corporate influence on regulators, have also demanded more transparency. Prodded by these concerns, lawmakers and administrations in both parties have spent the last three-plus decades wrapping the FAA and other regulatory agencies in ever more procedural red tape. Congress has compounded the problem by starving agencies for funds and whipsawing them with conflicting mandates. The result is a slower, more cumbersome regulatory process with countless veto points opponents can use to alter or kill regulations they don’t like. Which, for critics of regulation, was the whole point. Except now the process is hamstringing what ought to be a sprinting American industry.

Before coming to Airware, Jesse Kallman spent five years as an FAA contractor working on integrating unmanned drones into the existing airspace system. He was there in 2012, when Congress passed the FAA Modernization and Reform Act (FMRA) directing the agency to expedite commercial drone regulation. He was also there a year later when Congress sequestered a chunk of the FAA’s budget, crippling its ability to meet mandated deadlines. “These are the kinds of things going on that make it really challenging to hire people, to plan more than two months out,” says Kallman. “No one understands what their budget is. Everyone is getting furloughed. Will we have funding next week? That was a big problem.” Michael Huerta, the FAA’s chief, told Congress in April 2015, “In recent years, funding uncertainties resulting from sequestration, government shutdowns, and short-term reauthorization extensions have hurt the FAA’s ability to efficiently perform our mission, and have impeded our ability to commit to long-term investments.”

A lack of funding remains a problem at the FAA. For instance, companies that want to experiment with commercial drones before the new regulations are finalized can apply to the FAA’s Unmanned Aircraft Systems (UAS) office for what’s known as a “Section 333 Exemption.” The agency has already given out more than 250 such permission slips (and, in April, picked up its pace), but a backlog remains. “The UAS integration office is getting slammed with demand,” explains Kallman. “They need more people to process 333 applications.” Companies can also apply for an older type of exemption called an “experimental airworthiness certificate,” but these can take even longer to come through. Amazon waited more than half a year for an experimental certificate to test a drone delivery system, by which time, a company vice president, Paul Misener, told Congress this spring, that particular technology had become obsolete—delays that prompted Amazon to move its testing efforts to Canada.

Budget constraints are only part of the problem. Even more important are changes to the regulatory environment in recent decades that have slowed the process down. For instance, since the 1940s, regulators have been required by statute to allow members of the public to comment on drafts of rules as they go through the process. In more recent years, however, lobbyists for industries and interest groups have learned to game the system by flooding agencies with comments, many of them cut-and-pasted repetitions of one another. The Academy of Model Aeronautics (AMA), the principal model airplane hobbyist group, did exactly that, getting thousands of its members to submit personalized variations of the same argument that noncommercial drone enthusiasts should remain lightly regulated. Each comment must, by statute, be reviewed by agency personnel.

Agencies have also been given an ever-growing series of complex procedures they must follow before issuing final regulations. As the FAA’s February proposed rule states:

Changes to Federal regulations must undergo several economic analyses:
First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Public Law 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act of 1979 (Public Law 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995).

This isn’t even a complete list, and researchers have barely begun to assess the effects of all the efforts to regulate the regulators. But last year, the Harvard political scientists Daniel Carpenter and Jesse Gubb released a study of a key part of the process: rule review times at the White House’s Office of Information and Regulatory Affairs (OIRA). By statute and executive order, OIRA is required to review and sign off on all regulations issued by thirteen cabinet-level departments as well as many independent agencies based on cost-benefit analysis. Carpenter and Gubb analyzed data from all 42,014 OIRA regulatory reviews completed from 1981 to 2012. They found that average review times soared eightfold during that period, from less than ten days to nearly three months, with some rule reviews taking years to complete. It took OIRA four months to give the FAA’s drone NPRM a green light. (This measure, by the way, understates the delays OIRA imposes. It doesn’t take into account the extra time regulatory agencies put into preparing paperwork to bulletproof their rules against expected OIRA critiques.)

Another source of the problem businesses have with the FAA are the conflicting mandates that the agency is operating under. For years, the main task Congress and successive administrations have given the FAA has been to ensure the safety of air travel, a mission the agency has been astonishingly successful at (airline travel has been getting safer globally for decades, and there have been no major commercial airline crashes in the United States since 2009). The 2012 FMRA legislation demanded something very different from the agency: that it accept some risk to the airspace in order to accelerate the growth of the nascent commercial drone industry.

That’s a reasonable request, and in theory, the FAA ought to be able to find a way to do both. In practice, the agency’s traditional safety consciousness has overwhelmed its attempted accommodations to the drone industry. Companies are desperate, for instance, to fly drones “beyond visual line of sight” (BVLOS)—that is, miles beyond where the operator can visually see the aircraft—using cameras, GPS, and other guidance mechanisms. BVLOS flight is vital for many of the most promising commercial application of drones, such as inspecting electrical lines and delivering packages. But to get permission even to experiment with BVLOS systems in the United States (outside the Arctic, where Congress has created an exemption, and with the exception of a small pilot program the FAA announced in May), commercial drone manufacturers must apply for experimental airworthiness certificates and suffer delays. Or they can utilize one of a handful of FAA-approved test ranges, which are located in remote areas in states like North Dakota and Kansas—far from the industry’s center in California—and entail paperwork and restrictions that start-up firms find maddening as well as expensive. Other countries, including Canada, allow firms much easier permitting to experiment with BVLOS flying. In France, the practice has been allowed for lightweight commercial drones in rural areas without a government permit for several years.

Other countries, however, operate in parliamentary systems that don’t necessarily subject their regulatory agencies to the heads-I-win-tails-you-lose oversight that Congress routinely imposes. Joe Kennedy, a senior fellow at the Information Technology Innovation Foundation, recently authored a report calling for smarter regulations to encourage cutting-edge technologies like commercial drones, which was critical of the FAA’s efforts. But as a veteran former congressional staffer, he also understands the pickle the agency would be in if a commercial drone were, say, to crash into a bus. “A congressman or senator’s going to haul FAA leaders to the Hill and say in front of the cameras, ‘You’re responsible for ten deaths! How did you let that happen!’ ”

Congress has also complicated the FAA’s job by giving special treatment to a powerful class of drone users: hobbyists. For many years, model airplane buffs have been allowed to pursue their interest with little interference from the FAA. And for years, that largely unregulated system worked. There weren’t that many such hobbyists, and over several decades only about half a dozen deaths involving model airplanes were ever recorded, only one a bystander. Today, however, more sophisticated flight controls mean that no expertise is required to fly (though it is, perhaps, required to fly safely) and cameras with real-time video relays encourage some users to flout older norms. In January, for instance, a hobbyist crash-landed a drone on the White House lawn. A lot more people are flying drones, and the new technologies blur the lines between recreational and non-recreational use. If you are flying for fun and take a picture, and then later decide to sell it, were you a “hobbyist” or not?

But the AMA—the hobbyist group—convinced Congress to write into its 2012 law that the FAA “may not promulgate any rule or regulation regarding a model aircraft … flown strictly for hobby or recreational use,” so long as it was under fifty-five pounds, flown far from airports, and in accordance with “the programming of a nationwide community-based organization.” (The law doesn’t specify the name of such an organization, but the AMA is the only one that fits that description.) By granting the exemption, Congress put the FAA in the unenviable position of having to investigate individual instances of drone flying, make rabbinical judgments about whether the operator is or is not a hobbyist, and, if not, issue cease-and-desist orders to the non-recreational operator for activities that would otherwise be perfectly legal. As you can imagine, this has not sat well with commercial drone operators.

A more sensible system, which many European countries seem to be moving toward, would regulate based on the risk of the drone or practice, with the least risky—lightweight drones flown in rural areas at low altitudes—receiving little regulation, regardless of whether the operator is a hobbyist or a company. But that’s unlikely to happen in the U.S. given the parameters Congress has forced on the FAA.

This year’s proposed rule was in many ways better than drone advocates had feared. It basically codifies that by around 2017 the United States will have drone regulations almost as industry friendly as a number of other countries have today (and a few have had for years). That’s a step forward, and the FAA is continuing to try to work with industry on tricky areas like line-of-sight restrictions. Still, for the next two years, the complex systems companies need to devise—for instance, “sense and avoid” technologies for drones to replace human eyes and ears as the last resort in preventing crashes—will be easier, from a regulatory perspective, to research in, say, Canada, France, or Australia. And those other countries aren’t standing still. By 2017, their regulations are likely to be even more accommodating to changing technological realities.

“If you look to France,” says Kallman of Airware, “French regulation has been some of the most innovative in the world. They don’t have to go through the same procedures.” French regulators, he notes, have more discretion, which allows them to “iterate out initial steps quickly, and slowly expand.” The FAA, on the other hand, is “stuck with the process they’ve got.”

Indeed, that process is the consequence of years of effort in Washington to take discretion away from regulators. Several bills now before Congress (mostly sponsored by Republicans) would regulate regulators even further. You can argue that such efforts make the regulatory process more democratic. You can also argue that they make it more susceptible to the influence of lobbyists and to the deadening hand of bureaucratic complexity. What’s hard to argue, at least in the case of cutting-edge industries like drones, is that it’s good for business.

Konstantin Kakaes

Konstantin Kakaes is a fellow at New America, where he writes about the evolving uses of drones. He is the author of The Pioneer Detectives, an e-book.