AeroVironment CFO Talks BlueHalo Growth, Golden Dome, and $150M Capacity Push at Needham Chat

Key Points

• BlueHalo expanded AeroVironment’s portfolio into counter‑UAS and space, adding RF defeat, the LOCUST directed‑energy system, larger “Freedom Eagle” effects and space capabilities like the BADGER ground station, plus a multi‑hundred‑million dollar long‑haul laser‑communications win.
• AeroVironment is investing about $150 million in growth capacity over fiscal 2026–27 across Titan, JUMP 20, P550, LOCUST and BADGER, and plans a Utah facility expansion that could lift Switchblade manufacturing capacity from roughly $500 million toward nearly $2 billion while restructuring the product to improve free cash flow.
• Under the evolving Golden Dome initiative the company is pitching integrated counter‑UAS packages for critical infrastructure (an addressable AeroVironment opportunity of roughly $500M–$1B/year), but broader upside depends on faster procurement, clearer funding flows and potential legal changes allowing wider jamming use.

Austin Bohlig, senior analyst at Needham covering drone and defense technology, hosted the latest “Drone Track Fireside Chat” featuring Kevin McDonnell, CFO of AeroVironment NASDAQ: AVAV. The discussion focused on how the company’s strategy and portfolio have evolved following the completion of the BlueHalo transaction in 2025, the current U.S. procurement environment, and where management sees key growth opportunities across unmanned systems, counter-UAS, and space-related capabilities.

Portfolio expansion after BlueHalo

McDonnell said AeroVironment’s historical foundation has been its reconnaissance and “lethal drone” businesses, pointing to products including Puma and JUMP 20 on the reconnaissance side and Switchblade on the lethal side. He said BlueHalo added multiple new capabilities that broaden the company’s position across defense technology themes.

According to McDonnell, BlueHalo brought counter-UAS offerings including RF defeat and directed energy defeat through the company’s LOCUST laser system, as well as a “Freedom Eagle” capability described as a lethal effect against a larger drone. He characterized Titan 3 and Titan 4 as premier counter-UAS products and said Titan systems are commonly used at major events through direct sales or resellers.

He also highlighted BlueHalo’s space-domain capabilities, including BADGER for the U.S. Space Force SCAR program, which he described as a ground station architecture designed to communicate with multiple satellites at once. In addition, he discussed long-haul laser communications and said the company recently won “a big contract with an unnamed customer” worth several hundred million dollars to provide long-haul laser communications at distances of 200,000 kilometers or more. McDonnell said BlueHalo’s pointing and tracking technology is a key enabler for both laser communications and laser counter-UAS.

Competitive advantages and software strategy

Asked about competitive differentiation in a crowded defense tech sector, McDonnell cited the company’s long track record and “first-mover advantage” in military drones, noting AeroVironment “basically invented the reconnaissance drone” for the military and also described Switchblade as an early “lethal drone” born in Simi Valley. He also pointed to the company’s experience scaling production, referencing ramp-ups for Puma and Switchblade.

McDonnell also discussed the company’s software approach, describing a strategy built around “mostly compliant or open systems” that support plug-and-play hardware changes. He said AeroVironment’s Halo software ecosystem is not designed as a closed architecture and can connect to other command-and-control systems. He added that the company has focused software capabilities “on the edge” and referenced a recent Army contract for an autonomy stack at the edge, intended to help operators control multiple assets and conduct autonomous solutions.

Procurement environment and what could drive upside

On the post-shutdown contracting environment and the flow-through of large government spending, McDonnell said the “big dollars” have been “holding tight” and have not broadly dispersed into the services and programs the company is tracking. He said AeroVironment expects increased demand as money flows down, but added that the company has not seen much of it yet. He attributed some of the hesitation to shutdown concerns and suggested momentum could improve after that uncertainty clears.

McDonnell said the Department of Defense’s stated preference for faster procurement cycles and commercially developed solutions aligns with AeroVironment’s long-standing approach. He said the company has historically developed products on its own, previously spending roughly 10% to 13% of revenue on R&D pre-BlueHalo, and has sold products to the U.S. government and to more than 50 countries. He described most offerings as commercial products, with the space area being a notable exception.

When asked what could enable results above expectations, McDonnell pointed to several potential accelerants, including shorter procurement cycles and improved funding flow. He also cited a potential change in counter-UAS laws that would allow local law enforcement to operate Titan 4 and conduct jamming as “a seminal change” for the business. He added that international demand continues to grow and that the company sees “huge long-term growth” in directed energy counter-UAS, though he suggested this is less of a near-term driver.

Golden Dome, critical infrastructure, and hypersonic testing

McDonnell said AeroVironment is “really excited” about the evolving Golden Dome initiative. He described the company’s positioning around protecting “the inner layer” of U.S. infrastructure with counter-UAS capabilities and said AeroVironment has pitched a package approach for specific critical infrastructure sites using Titan systems, lethal effect and directed energy systems (including LOCUST), and supporting software. He also referenced testing equipment in North Dakota to demonstrate capabilities and said the company is pushing to “show success in the next 12 months with at least a few sites.”

In response to a question about the estimated $25 billion size of Golden Dome, McDonnell distinguished between different opportunity areas. For critical infrastructure protection using counter-UAS, he said the addressable opportunity for the company is not on that scale, suggesting instead a potential “$500 million to a $1 billion a year” opportunity over time. He added that the company’s space business—laser communications, ground stations, and space hardware—could see increased demand. He also cited hypersonic testing as an additional, “lesser known” area, describing a capability to put hypersonic test equipment on a Reaper as a lower-cost alternative to traditional testing methods that can cost tens of millions of dollars.

Manufacturing scale, cash flow focus, and international demand

On BlueHalo integration, McDonnell said the deal was not cost-driven and that the company has not heavily pushed synergies because it is “growing so fast,” adding that headcount has increased since the transaction. He described Golden Dome as an example of a revenue synergy, arguing the combined portfolio positions the company better than either firm alone would have been prior to the merger. He said there are also technology synergies, though he noted it is difficult to forecast how and when payoffs will materialize.

McDonnell said a key internal focus area for improving free cash flow is the Switchblade business, which he described as historically “a bit of a cash drain,” with a goal to restructure it to become more cash-flow positive.

On capacity expansion, he referenced AeroVironment’s capital spending outlook and said the company plans to invest about $150 million in growth capacity over fiscal 2026 and fiscal 2027. He said these investments span multiple product lines, including Titan systems, JUMP 20, P550, LOCUST, and BADGER. For Switchblade specifically, McDonnell said the current factory’s capacity has been described as roughly $500 million, with additional capacity being added through other local buildings. He said the planned Utah facility would expand manufacturing space from an estimated 30,000 to 40,000 square feet today to about 100,000 square feet, and suggested that with the new facility the company could reach Switchblade capacity “well close to $2 billion,” while noting the plant could be used flexibly across products depending on demand.

Internationally, McDonnell said AeroVironment has long had a strong footprint in Europe and the Middle East and continues to see strong demand for its products. He highlighted Puma as a leading reconnaissance drone capable of flying for several hours and said the product continues to be chosen globally despite significant investment flowing into competing drone technologies.

On potential future acquisitions, McDonnell said the company has been acquisitive and may continue to be, generally looking for tuck-in deals that strengthen existing businesses through vertical integration, engineering, or manufacturing capacity rather than pursuing entirely new categories.

In discussing programs he finds most compelling, McDonnell emphasized JUMP 20’s momentum, calling it a major growth driver after an early period that “did not get off to a great start.” He said the platform is gaining traction with the Navy and Marines, seeing strong demand in Europe, and that AeroVironment is working through efforts to replace incumbents on Navy ships. He also highlighted P550 as a product he is “super excited” about because of its compliance and potential to support local content through third-party payloads.

About AeroVironment NASDAQ: AVAV

AeroVironment, Inc NASDAQ: AVAV is a technology company specializing in unmanned aerial systems (UAS), tactical missiles and precision loitering munitions, electric vehicle charging and scalable energy systems. Headquartered in Monrovia, California, the company develops solutions for defense, public safety and commercial markets. Their offerings include small UAS for intelligence, surveillance and reconnaissance, as well as advanced weapons systems designed to meet the needs of modern military operations.

The company's unmanned aerial systems portfolio features platforms such as the Raven, Puma and Switchblade series, which are deployed by the U.S.

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