Regulation Clips Wings of U.S. Drone Makers

In four years, GmbH has emerged as a promising player here in the rapidly expanding commercial-drone industry. The 20-employee startup has sold more than 400 unmanned aircraft to private-sector companies and now is pitching its fourth-generation device.

Over the same period, Seattle-based Applewhite Aero has struggled to get permission from the Federal Aviation Administration just to fly its drones, which are designed for crop monitoring. The company, founded the same year as Service-drone, has test-flown only one of its four aircraft, and is now moving some operations to Canada, where getting flight clearance is easier.

“We had to petition the FAA to not carry the aircraft manual onboard,” said Applewhite founder Paul Applewhite. “I mean, who’s supposed to read it?” Mr. Applewhite, like many of his U.S. peers, fears the drone industry “is moving past the U.S., and we’re just getting left behind.”

The U.S. introduced drones to the world as machines of war. But as unmanned aircraft enter private industry—for purposes as varied as filming movies, inspecting wind farms and herding cattle—many U.S. drone entrepreneurs are finding it hard to get off the ground, even as rivals in Europe, Canada, Australia and China are taking off.

The reason, according to interviews with two-dozen drone makers, sellers and users across the world: regulation.

The FAA has banned all but a handful of private-sector drones in the U.S. while it completes rules for them, expected in the next several years.

That policy has stifled the U.S. drone market and driven operators underground, where it is difficult to find funding, insurance and customers.

Outside the U.S., relatively accommodating policies have fueled a commercial-drone boom. Foreign drone makers have fed those markets, while U.S. export rules have generally kept many American manufacturers from serving them.

The FAA said its drone policy reflects concern for the safety of people in the air and on the ground. It rejected any comparison to foreign regulators, saying the U.S. has far more low-flying private planes that are at most risk from drones.

In September the FAA authorized six filmmaking companies to use drones, bringing to eight the number of approved U.S. commercial-drone operators. In Europe, there are thousands, including a thriving network of drone middlemen and contractors who use the devices to gather data for clients.

The U.S. is home to at least one commercial-drone success: California-based 3D Robotics Inc. The 200-employee company has emerged as one of three industry giants, along withParrot of Paris and SZ DJI Technology Co. of Shenzhen, China. These companies have captured the vast majority of the global nonmilitary-drone market by selling easy-to-fly devices for less than $2,000.

DJI, which many in the industry consider the world’s biggest consumer-drone maker, has flooded the U.S. and over 100 other countries with its 2-pound, camera-equipped Phantom drones. The four-rotor miniature helicopters cost around $1,000.

Meanwhile, 3D Robotics, the smallest of the trio, can’t test-fly its drones in the U.S., where export rules also have blocked it from shipping its similar devices to many countries, including China, Brazil and Russia.

FAA regulations prompted Google and to test their delivery-drone prototypes in Australia and Canada, respectively. In September, Deutsche Post DHL AG of Germany said it would start commercial deliveries of medicine to a North Sea island in a month-long test, aided by cooperation among German agencies that are restricting airspace for drones.

Google, Amazon, 3D Robotics, DJI and several other companies this month unveiled a political-action committee to lobby federal, state and local governments in the U.S. for policies to nurture the nation’s drone market.

Amazon and Google recently drew attention with talk of delivery drones but companies using drones today are more like Wasser-und Verkehrs-Kontor GmbH, an engineering firm in Neumünster, Germany, a city of 77,000 people about 55 miles south of Denmark.

In June, WVK bought an eight-rotor $50,000 Service-drone octocopter that resembles a spider, and began using it to make 3-D models of roads, buildings and a powdered-milk factory.

The firm says the drone is transforming its engineering. Before, workers took ground-based measurements for two days to yield a two-dimensional map of a flood-prone intersection with an accuracy of 1.5 meters, or roughly 1.6 yards. The drone required just three 10-minute flights to produce a 3-D model of the intersection with 1-centimeter, or about 0.4-inch, accuracy.

The model looks like a high-definition photo, but it is actually a mosaic of millions of data points, allowing engineers for the first time to accurately simulate how water would collect.

“You can’t compare,” said Manfred Greve, a champion model-aircraft pilot who flies WVK’s drone. “It’s like you’re racing a race car and a bicycle.” He landed the surveying work partly because his company makes the octocopter’s carbon-fiber propellers.

In Europe, Germany has the biggest cluster of drone makers, who say they are generally profitable and operate on cash from sales, not startup money. Most U.S. drone makers and service providers are still embryonic, scraping by on venture-capital funding and customers who use the devices against FAA policy.

“The advantage in Europe is you can actually make money using these platforms, whereas in the U.S., it is the Wild, Wild West,” said Michael Blades, an aerospace analyst or market researcher Frost & Sullivan. “Many U.S. companies are hanging on by a thread right now.”

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