A Predator That Preys on Hawks?

General Atomics' unmanned plane is on Northrop Grumman's tail

They were an emblem of American optimism in the Eisenhower era. The cover of Life magazine for Apr. 8, 1957, featured "The Flying Blue Brothers," two blond, crew-cut Coloradans, fresh from their Yale University dorm rooms, piloting a Piper Tri-Pacer alone over the Andes. For nine pages inside, the brothers--Neal, 21, and Linden, 20--are seen cavorting with headhunters in the Amazon, trying to right their crashed plane on a mountain ice shelf, and later, lounging on Ipanema Beach with a comely brunette. The world, it seemed, was filled with possibilities. And for the Blue brothers, indeed it was.

Nearly a half-century later, the entrepreneurial duo have made their fortune in real estate and energy. The brothers, who briefly ran a cocoa-and-banana plantation in Nicaragua with the family of former President Anastasio Somoza, now have an empire that includes natural-gas wells in Canada, a streetcar manufacturer in Germany, and hundreds of acres of ranchland outside the resort town of Telluride, Colo. In 1986, the Blues added General Atomics, a nuclear-power research company, which they bought from Chevron for $50 million. Neal Blue, 67, is chairman and CEO. Linden, 66, is vice-chairman.

But it is another of the Blue brothers' businesses that is making headlines. General Atomics also makes the Predator unmanned spy plane. Like the P-51 Mustang in World War II or the Stealth Fighter in the Persian Gulf War, the Predator has come to epitomize American ingenuity in battle. The Predator played a key reconnaissance and attack role in Afghanistan and last November was used to kill al Qaeda operatives in Yemen. And it would probably be an important weapon in a war against Iraq, helping to hunt down and destroy Saddam Hussein's Scud missile launchers.

The Predator could also be a major headache for Northrop Grumman Corp. (NOC ) The nation's No. 2 defense company makes the more technologically advanced and far more expensive Global Hawk drone. The U.S. Air Force is committed to buying both planes. But the Predator's capabilities are expanding, while Congress has raised questions about the Global Hawk's spiraling price tag. At $35 million, it is almost eight times as much as the Predator's. The development of the smaller, cheaper plane shows how even in an age of $300 billion Pentagon budgets, nimble entrepreneurs can shake up the Establishment.

The military has pursued unmanned aerial vehicles since the Civil War, when both sides floated bomb-laden balloons toward each other. During the Vietnam War, drones were deployed for reconnaissance, but it was often difficult to recover data. Subsequent models were derailed by other technical difficulties. But Neal Blue, the brother who concentrates on General Atomics' aerospace business, believed that could change with computers, digital data storage, and global positioning satellites. "For 4,000 years, people have been trying to figure out how to hit the target," says Blue. "I saw the potential for a big leap in technology."

Blue had the money to back up that belief--and a keen sense of how to spend it wisely. Frederick W. Hill, Neal Blue's partner in buying his Canadian oil and gas assets, recalls a time in the mid-1980s when managers were suggesting a big hike in the company's drilling budget, based on projections of $30-a-barrel oil prices. Blue told the group to go back and recalculate the numbers based on $12 a barrel. The budget was not increased, and the price of oil later plunged to $10. "That would have put us under," Hill recalls. "Neal's very good at long-range thinking."

His interest in drones accelerated in 1987 when he hired Thomas J. Cassidy Jr., a former Navy rear admiral, to pursue advanced technology projects. Some four years years later, they swooped in and purchased Leading Systems Inc., a floundering drone business. In 1993, when the Defense Dept. put out a call for new unmanned aircraft, Blue and Cassidy quickly turned a Leading Systems prototype, the Gnat 750, into the Predator. Cassidy stuck to off-the-shelf parts, using cameras made for traffic helicopters and a Bombardier engine originally designed for snowmobiles. Giving the Predator a propeller instead of jets was not only cheaper but allowed it to remain nearly stationary while aloft. A Predator can linger for a full day at 25,000 feet while it records and relays data. "One of the reasons we've been successful is we try to avoid science projects," Cassidy says. "We don't want never-ending research and development efforts."

Cassidy knew from his days flying fighters in Vietnam that a drone would be easier to sell to the Air Force if it included a role for pilots. So from takeoff to landing, the Predator can be steered with a joystick by a pilot sitting in a trailer hundreds of miles away, a solution that was also relatively cheap. The first contract was awarded in January, 1994, just two months after Washington put out the call. The rollout took place under a new Pentagon initiative aimed at speeding up weapons procurement. The Predator saw combat in the Balkans 17 months later--record time in a business where weapons can take decades to develop.

General Atomics has built 82 Predators to date, cranking out two a month in a suburban San Diego office park. They are assembled out of honeycombed paper, graphite, and other materials layered and baked together in a special oven. Without spy gear and weapons, each plane weighs a mere 1,130 pounds--40% as much as a Volkswagen Beetle. "It's like a California speed shop where they hand-build hot rods," says Glenn Buchan, an analyst at Rand, a Santa Monica (Calif.) defense think tank. Nearly a third of the planes have crashed or been shot down--a loss rate that is palatable because Predators cost only $4.5 million each and are unmanned. Air Force officials say they plan to buy about 70 more. "We lost one two weeks ago, and it was on page six of The Washington Post," says Lieutenant Colonel Douglas Boone, deputy secretary for acquisitions at the Air Force. "If that had been a [manned] F-16, it would have been page one."

The Predator began as a spy plane. But when General John P. Jumper, now Air Force chief of staff, noted the frustration of locating targets but being unable to hit them in the Balkans, Predators were adapted to carry missiles. A follow-on version, Predator B, is in the works: It's bigger, faster, and carries more weapons and spy gear at greater altitudes. The company developed Predator B with no Pentagon funding. In December, Washington ordered two of them at $7.8 million each. Says Neal Blue: "We don't have committees. We tell people, `Don't wait for someone else to be sold on your project."'

Pentagon officials, meanwhile, insist that they need more than one type of drone. One of them is Northrop's Global Hawk, which is also unmanned but flies at much higher altitudes--up to 65,000 ft., vs. 25,000 ft. for the Predator--takes off from farther away, and can carry more sophisticated surveillance gear. Robert Mitchell, head of the Global Hawk program at Northrop, scoffs at the idea that the Predator is competition. "Isn't that a paper airplane?" he jokes. "We don't see many of those at our altitude." Since Northrop bought the Global Hawk's maker, Ryan Aeronautical Systems, in 1999, it has built seven of the planes, three of which have since crashed.

The Air Force says it wants 51 Global Hawks, but it won't be easy to get them. For one thing, the per-plane price has skyrocketed nearly fourfold as the Air Force has sought upgrades for the latest radar, cameras, and listening devices. The upgrades required stronger engines, greater electrical capacity, and even a new wing design. The Air Force has proposed scaling back the technology on some planes to cut the cost. But some military strategists think the Pentagon might scrap the Global Hawk in favor of a newer, harder-to-hit plane. In the meantime, says Loren B. Thompson, an analyst at the Lexington Institute think tank: "The business potential for Global Hawk is not yet clear. The Predator's market and limitations are understood."

Indeed, the Predator's market is robust and growing. Privately held General Atomics says its revenue from the drone business totals about $150 million annually. Neal Blue won't divulge profits but insists that the Predator is making money. In fact, industry sources say other contractors are buzzing around General Atomics with buyout offers. Forget it, says Blue. "This is fun the way it is," he insists, still sounding like the kid who once flew over the Andes with his little brother, facing a world of possibilities.

By Christopher Palmeri in San Diego

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