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Aerospace and defense technology company AIRO Group Holding’s IPO debuted in June on the strength of its track record as a developer and manufacturer of drones. CEO Joe Burns and CEO Chirinjeev Kathuria discuss how drones are transforming industries from defense to commercial applications: all under the watchful eyes of Wall Street.
Global Finance: Have drones fundamentally changed modern conflict?
Joe Burns: The war between Russia and Ukraine has been known as the Drone War, and for good reason. The reality is that drones are finding their way into conflicts and can be an extremely useful tool without carrying the same risk that they would with manned assets. It has been a radical change in how conflicts are managed, and drones are now an integral part of that.
Chiringev Kathuria: A $25 million tank destroyed by a $100,000 drone will change your entire battlefield strategy. It’s hard to imagine that you could take a truck, put drones in a box, and launch them. It’s a wonderful thing, but it can also be very devastating. In one night, 191 drones were launched into Ukraine that could destroy different cities. It is a completely different way of war, and it will change the military strategies and budgets of NATO, the United States and Europe. I don’t think anyone has ever talked about drone control in this way.
GF: How do you see defense spending evolving over the next decade?
Burns: I am confident that defense spending will increase significantly. We are already seeing increases in the United States and in NATO countries. The move from 1.5% of GDP to 2% is already underway, and the next move from 2% to 5% by 2035 is also very real. Because of the war in Ukraine, countries have become confident that preparing for conflict in advance, rather than getting caught up after something has already happened, is an increasingly important factor in today’s geopolitical landscape.
Katoria: Europe and Canada have already increased their spending. Denmark achieved an almost 100% increase in defense spending. The reality is that the geopolitical environment has changed in ways not seen in decades, so everyone is serious about this issue.
GF: From a theoretical point of view, how stable are AIRO’s sales forecasts, given the inherent uncertainty of the conflict?
Burns: There will always be a need for products like ours for surveillance, even in the absence of armed conflicts. Moreover, as history has shown us time and time again, systems developed for the military quickly trickle into the civilian sphere. And I see that happening in the drone environment as well.
GF: How has the market treated defense and drone companies lately?
Katoria: On Wall Street, right now, anything drone-related gets attention. It’s almost like an AI boom. Our IPO went live on Wednesday and priced within 48 hours. Our follow-on offering, which we completed in September, was priced within one day and amplified by a maximum of 20% through a Greenshoe exercise (following on by selling more shares than originally planned). Financial investors and corporate partners are really looking at companies in this space, trying to figure out the ultimate winners of this boom.
Burns: We just read a few days ago that there are almost 300 drone manufacturers in Ukraine. That’s a huge number, isn’t it? They were not there before this conflict. They may move around a lot, or they may be in people’s garages, or they may be in large factories. However, this has changed the competitive landscape a bit.
GF: Do you expect the industry to consolidate?
Katoria: There are probably 1,000 different drone companies and manufacturers, but as you’ve seen in every industry — even with AI, from OpenAI and Elon Musk’s SpaceX — consolidation is going to happen very quickly. There will be rapid mergers, and investors will focus on companies that have proven their competence in this field.
GF: What non-defense applications do you see for drone technology?
Burns: When we started, we went to our first drone trade show, and it was pretty much all commercial civilian applications, with a big focus on agriculture. What we are witnessing now is a secondary comeback. Companies that may not have wanted to get involved with drones before are now looking at their uses in agriculture, forestry, resource monitoring and vehicle counting. It’s really an endless list.
CEO of AIRO Group
GF: Do you expect commercial growth to outpace military applications in the drone industry?
Burns: As history has shown us time and time again, systems developed for the military quickly trickle into the civilian domain. The answer for me is yes. I see the business side starting to adopt drones at a much higher rate than we expected.
Katoria: I agree that the business side will grow faster. Military drone providers are more adaptable because we developed our technology in the military environment, and the regulations and requirements on the commercial side are not onerous. We are well positioned for this growth.
GF: How does AI contribute to the development of drones and their capabilities?
Burns: Once launched, our drones are fully autonomous. They go out and fly in their own patterns, search for the intelligence they seek on their own, and then come back and land on their own. This is a big advantage.
Computational fluid dynamics programs that used to take a long time to run can now be implemented using AI at a much greater rate. When it comes to jamming and spoofing, artificial intelligence plays a crucial role in how we counter interference systems.
GF: How have tariffs and supply chain disruptions affected your operations?
Burns: The way our companies are distributed has had very little impact on tariffs. American Products imports mostly American components for all of our product lines, not just in the drone world, but certainly in avionics. If there are some regional definitions in place, they have been in place for a long time; We haven’t seen any increases. So it had very little impact on the way we structured our company.
GF: How is regulation evolving with the proliferation of drones?
Burns: All regulatory bodies involved in aviation recognize that you cannot allow an industry to operate freely in the same airspace that is shared with manned aviation. Over time, we will see more integration in air traffic control, because it is essential. The ability to track and identify individual drones, whether friendly or enemy, will be a key part of air traffic systems around the world.
GF: Aside from drones, what other market opportunities do you see?
Burns: One big area that I know everyone has been affected by is the pilot shortage, and there will continue to be a pilot shortage. Everyone retires at age 65 with airlines in the US. Time passes, pilots have to retire, and they have to be replaced. We are very excited about the prospects of commercial pilot training schools and have an active letter of intent with a pilot training company to provide us with expansion opportunities.
