Unlike their small counterparts, large drones or unmanned aircraft systems (UAS)1 have yet to be commercially operated at any meaningful rate due to the lack of a tailored legal framework, although it is increasingly likely that soon may change. If the public sector’s expanded use and UAS technology in the United States (i.e., military, police and border patrol) is any indication, large commercial UAS could have the capability for sustained beyond-line-of-sight flights, carrying substantial payloads,2 with significant commercial applications in the U.S. and abroad. In turn, large UAS will become critical mobile assets for businesses. This article briefly explores the legal developments necessary for large commercial UAS operations from regulatory and transactional perspectives.

While many countries, including the U.S., have allowed commercial operations with small UAS (sUAS), civil aviation authorities, including the U.S. Federal Aviation Administration, have been slow to regulate large UAS commercial operations. For example, design standards in the U.S. are only at a preliminary development stage. Just as sUAS applications have been proven successful and valuable with the benefit of a tailored sUAS legal framework in a variety of industries — from insurance to movies to energy sectors — commercial opportunities for large UAS for carrying cargo, conducting large aerial surveys and other applications are many.

Regulation of Large Commercial UAS

In 2012, Congress charged the FAA with developing a plan to integrate UAS into the national airspace system (NAS) by Sept. 30, 2015.3 In 2013, the FAA released its integration roadmap, outlining “within a broad timeline, the tasks and considerations needed to enable UAS integration.”4 While the FAA is devoting resources to accomplish the roadmap’s goals and is working closely with other agencies to address related issues (e.g., security and privacy), the FAA has not yet proposed a regulatory framework for certification or operation of large UAS.

Integration into the NAS requires a thoughtful and multidisciplinary approach. From an FAA perspective, two main areas that the FAA must address are aircraft certification standards for the UAS and operational requirements for the users.

First, aircraft certification standards govern design, construction, manufacturing and continued airworthiness to make an aircraft highly reliable and safe for the intended operation. But existing standards are based on the assumption that the aircraft are manned. As the FAA’s roadmap recognizes, the FAA must develop unique type design standards and approval processes to evaluate the safety of the large UAS and its systems, a process the FAA considers to be more rigorous than merely determining that a UAS is airworthy. The FAA will also have to develop or adapt the airworthiness certification process to ensure that the large UAS complies with appropriate safety standards.

Although the FAA has not proposed forcing certification standards upon sUAS, the FAA appears to be taking its planned “incremental approach” to developing and implementing certification standards and processes for large UAS. For example, the FAA has enlisted the help of RTCA Inc. (formerly the Radio Technical Commission for Aeronautics), a private-public partnership venue that responds to FAA requests to develop comprehensive, industry-vetted and endorsed recommendations that serve as a basis for government certification. While the FAA will remain responsible to define and implement the final standards, RTCA recently released preliminary design standards for large UAS that address collision-avoidance technologies, airborne collision-warning systems and precise navigation and pinpoint location technology.5

Second, the FAA will need to fold large UAS into its airspace with standard operating procedures to ensure safe and efficient operations. After the FAA “incremental[ly] increase[d]” NAS access for existing platforms (developed and built without certification standards) through test sites and after it establishes operational airspace and procedures for sUAS (expected in 2016), the FAA has planned to develop or revise operational rules and procedures, and associated standards and policies, to allow UAS access throughout the NAS, including large UAS. The FAA’s significant hurdles will be to assess the applicability of existing air traffic control regulations and orders to UAS operations, identify and analyze any gaps and decide on accommodations or changes to UAS operational procedures or regulations.

While extensive commercial operations and design and operating standards may not become reality for a number of years (at least not in the U.S.), those developing large UAS platforms can use existing FAA authorizations as guides or seek special authorizations for limited UAS operation. Currently, civil operators may seek to operate large UAS with special FAA approvals, including a Special Airworthiness Certificate in the categories of experimental or special flight permits (SFP).6 The FAA typically issues such certificates to UAS operators wishing to conduct UAS research and development, crew training, market surveys or production flight testing.7 The civil operator must also obtain an operation certificate of waiver or authorization from the FAA (currently available for test sites or public operators), operate with certificated or qualified airmen and register the aircraft, among other requirements. However, these approvals come with significant conditions and limitations and are far from the regulatory framework necessary for widespread commercial operations.

Besides accomplishing these key regulatory developments, the FAA will concurrently have to address other major issues before large commercial UAS integration, including pilot certification and training, security, airport issues, privacy and air-traffic management.

Considering the FAA’s extended roadmap to UAS integration and ongoing efforts, large UAS manufacturers and potential commercial operators should closely monitor the FAA’s integration efforts, including any standards and rulemakings that may impact or even suggest limitations on future commercial operations. Equally, the FAA faces the daunting task of keeping up with the demands to expand UAS operations in the commercial sector. Such demands will become more pressing as technology reduces costs and makes large UAS operations commercially viable and essential to compete in a globalized economy.

Until the FAA issues its rules for large UAS, operators can also explore operation of large UAS operations outside of the U.S., depending on the country’s particular requirements. For example, the U.K. has had legislation in place since 2009 that provides for the registration and operation of small and large UAS.8 Likewise, the EU aviation safety agency, EASA, has since 2009 comprehensively regulated the design, production, maintenance and operation of UAS of more than 150 kilograms (330 lbs).9

Purchasing, Financing and Leasing of Large UAS

The aviation regulatory framework is only one important consideration for the integration and commercialization of large UAS. As manufacturers begin to produce larger commercial UAS incorporating greater sophistication and capabilities, costs of design are also likely to rise with a corresponding increase in purchase price per unit. Consequently, banks, lessors and operators will inevitably view large commercial UAS like any other piece of valuable equipment, with the same financial and legal products being brought to bear on the industry, such as operating leases, bank financings, export credit support and securitizations.

In the event large UAS emerge as a new subclass of aviation assets to be leased and financed alongside traditional aircraft, transactional lawyers will begin to question whether the Cape Town Treaty,10 a central pillar of international legislation for aircraft finance and leasing, might apply to the financing and leasing of large commercial UAS.

The Cape Town Treaty creates an international legal framework for the registration, priority and enforcement of conditional sale, leasing and security interests (so-called “international interests”) over aircraft airframes, aircraft engines and helicopters, in an attempt to harmonize and bring down the costs of cross-border asset-based financing and leasing. Unlike national aircraft registers (such as the FAA’s registry), which exist to record and assist in the regulation of owners and operators of aircraft, including UAS, the international registry created by the Cape Town Treaty exists primarily to record conditional sellers’, creditors’ and lessors’ interests in aircraft (regardless of where they may be registered nationally). In this respect, the international registry very closely mirrors the system in place throughout all states in the U.S. for the creation, perfection and enforcement of security interests over personal property, which attach pursuant to Article 9 of the Uniform Commercial Code.

If a large commercial UAS is registered on the aircraft register of a Cape Town Treaty contracting state,11 or the borrower or lessee is situated in such a state,12 the Cape Town Treaty would apply to any mortgage instrument or lease in respect of any large commercial UAS that are type-certified to transport goods in excess of 2,750 kilograms (approximately 6,000 lbs).13 This payload is not as farfetched as it might seem: Military UAS are continually expanding their payload capacity and have exceeded payloads of many thousands of pounds.

Thus, in the event that the criteria described above are met and the Cape Town Treaty does apply to the financing or leasing of a large commercial UAS, lessors and financiers will need to ensure that the “international interest(s)” are properly registered to preserve their priority in the equipment and take advantage of the remedies that are (in some countries) not otherwise available. Also, while it’s arguable that large commercial UAS are perhaps less likely to operate internationally in any one flight (in contrast to manned large commercial aircraft) and any such cross-border operations have significant air service treaty implications, their relative size could facilitate packaging and shipping for use in another country with relative ease.

Conclusion

UAS will become more ubiquitous in the coming years and decades, with technology advancing at a pace that will present challenges for users, lawyers and regulators alike. Moreover, each step toward integration and commercialization will likely offer opportunities for businesses — including manufacturers and users — to acquire (and, possibly, finance and lease) large commercial UAS and to shape the legal framework for their use and operation in the commercial environment. The message is loud and clear: Watch this (air) space.

This article was originally published on Law360 on October 15, 2015.