The Drone Market This Week: AeroVironment’s Record Backlog, Canada Commits to Millions of Drones, and One Drone Shuts Down San Diego

The gap between demand and price was the story of the week. AeroVironment posted the strongest backlog in company history and watched its stock trade 65% below last October’s high. Canada announced it needs to go from roughly 2,000 military drones to millions inside two years, which is an admission that a G7 military has almost no drone inventory at all. A commercial airport in a major American city lost two and a half hours of operations to one unidentified aircraft, nine months after Congress gave local police the authority to stop exactly that and ten months into a federal certification pipeline that has produced about sixty qualified officers. The Air Force asked industry to build cargo planes that launch drone swarms and skipped the feasibility phase entirely.

Here’s the breakdown:

AeroVironment reported fiscal 2027 first quarter results on September 9 for the quarter ended August 1. Revenue came in at $480.5 million, up 6% year over year and a first-quarter record, with Autonomous Systems contributing $346.0 million and the Space, Cyber and Directed Energy segment contributing $134.5 million.

Bookings were approximately $0.7 billion, producing a book-to-bill ratio of 1.4. Funded backlog reached a record $1.5 billion, up from $1.2 billion on April 30 and 37% higher than a year ago. Including roughly $1.4 billion of unfunded backlog, total backlog now stands near $2.8 billion.

The demand signal was difficult to argue with. The earnings conversion was less clear. Autonomous Systems generated approximately $62 million of adjusted EBITDA on $346 million of revenue, while Space, Cyber and Directed Energy lost roughly $9 million on $134.5 million of revenue. Free cash flow was also negative as AeroVironment continued investing in manufacturing capacity. Management therefore maintained rather than raised full-year guidance of $2.125 billion to $2.225 billion in revenue, $305 million to $325 million of adjusted EBITDA and $3.02 to $3.34 of adjusted earnings per diluted share.

That distinction is increasingly the AeroVironment story. Funded backlog represents contracted work where funding has already been obligated, substantially reducing demand uncertainty. A 1.4 book-to-bill means the company booked roughly $1.40 of new business for every dollar of revenue recognized during the quarter. But backlog does not determine the margin, timing or cash required to deliver that work.

The $464.8 million Enduring High Energy Laser production award announced September 2 came after quarter-end and therefore is not included in the $1.5 billion funded backlog. It also falls into the Space, Cyber and Directed Energy business, which is the segment where investors most need to see backlog translate into profitable production.

The share price reflects that skepticism. AVAV jumped roughly 13% to 14% intraday after the release but remains about 39% below its level at the start of the year and roughly 65% below its October 2025 peak. The market is no longer questioning whether AeroVironment can win orders. It is waiting for evidence that record demand can be converted into higher margins, earnings and free cash flow.

Prime Minister Mark Carney and President Volodymyr Zelenskyy signed a declaration in Calgary on September 10 establishing a 100-year partnership between Canada and Ukraine covering defense, security, trade, reconstruction, energy, critical minerals and technology, with drone production a major component of the new defense relationship. Carney said the Canadian Armed Forces currently have roughly 2,000 drones and will need millions in the years ahead. More immediately, Canada wants its domestic industry to have the capacity to produce millions of drones within two years.

Canada awarded up to $50 million in initial Defence Drone Initiative contracts intended to increase the number of drones currently deployed by the Canadian Armed Forces tenfold. Ottawa also committed approximately $350 million through the U.S.-led JUMPSTART mechanism for air-defense interceptors for Ukraine. Carney said one-third of the drones manufactured under Canada’s expanding industrial effort will support Ukraine. The government also launched the Defence Drone Initiative Marketplace, a digital procurement system modeled on Ukraine’s Brave1 that gives military users access to nearly 400 qualified Canadian suppliers.

The structure is what makes this different from simply transferring weapons to Ukraine. Canada is using Ukrainian battlefield experience to build its own domestic drone industry, linking procurement to new factories, supply chains and component capacity while establishing a long-term government-to-government framework for jointly producing uncrewed systems, counter-drone technology and munitions. The result is an industrial relationship rather than simply another aid tranche: Canadian manufacturers gain production volume and operational knowledge, while Ukraine gains a continuing source of allied manufacturing capacity.

The marketplace is already producing awards. Draganfly announced on September 8 that it had qualified across all five capability streams of the Defence Drone Initiative Marketplace. On September 9 it appointed retired Royal Canadian Air Force Colonel Kevin Leblond to lead its Canadian defense and security business, and on September 11 it announced a five-year tactical ISR agreement with the Canadian Armed Forces. The initial order covers 100 systems, with options for as many as 4,900 additional aircraft.

The number worth tracking is not Canada’s current 2,000-drone inventory by itself, but the industrial response to it. Ottawa is moving first from roughly 2,000 drones to a tenfold increase in deployed systems, while simultaneously trying to create domestic capacity capable of producing millions within two years. If other NATO governments reach the same conclusion, that modern militaries require drone inventories measured in hundreds of thousands or millions rather than thousands, the constraint quickly shifts from demand to factories, components and production capacity.

San Diego International Airport lost two and a half hours of operations on Friday, September 4 after multiple drones were observed near the field, including one hovering 20 to 25 feet above the air traffic control tower, alongside a high-altitude balloon. The FAA issued a ground stop from roughly 2:00 p.m. to 4:30 p.m. on the Friday of Labor Day weekend. More than 400 flights were delayed, arriving aircraft held over the Pacific and several diverted. San Diego operates a single runway, so the disruption propagated through the national system. The TSA opened an investigation with no sensor data, no trajectory history and no operator position, because nothing at the airport was recording any of it. Brussels Airport halted traffic after a drone sighting on the evening of September 12.

The legal picture changed a year ago and the operational picture did not. The SAFER SKIES Act passed in the fiscal 2026 National Defense Authorization Act and was signed on December 18, 2025. A Justice Department and Homeland Security interim final rule took effect July 1, 2026, allowing certified state, local, tribal and territorial law enforcement to detect, track, disrupt, seize and when necessary destroy drones posing credible threats. Certification runs through a single channel, the FBI’s National Counter-UAS Training Center at Redstone Arsenal. The first class graduated approximately 12 officers in November 2025, and roughly 60 personnel held mitigation certification as of June 2026, against approximately 17,500 state and local police agencies and more than 1,000 correctional facilities.

Authority arrived. Capacity did not. Sixty certified officers cannot cover 18,500 agencies, and the single federal schoolhouse that produces them is the constraint on the entire domestic counter-drone market. Detection is where the spending starts, because detecting a drone requires no special authority and no certified operator, and every airport, stadium, prison and utility that watched the San Diego footage now has a budget conversation it did not have in August. There is still no federal requirement that a commercial airport field drone detection at all. San Diego is what that absence looks like on a holiday Friday, and it will not be the last airport to demonstrate it.

The Air Force issued a Small Business Innovation Research solicitation on September 9, with responses due October 21, seeking to convert cargo aircraft into what it called adaptive, force-multiplying launch platforms. The solicitation carries three objectives: using mobility aircraft as high-altitude motherships for autonomous drone swarms, building self-protection systems for those aircraft in contested airspace, and fielding AI-controlled swarms for autonomous base perimeter defense. The Air Force is skipping SBIR Phase I and moving straight to Phase II, stating that multi-drone AI coordination is already proven in the private sector.

Phase I exists to establish technical feasibility before the government commits development money. Skipping it is the Air Force saying the feasibility question has already been answered commercially and that paying to re-answer it wastes a year. That is a procurement judgment about the maturity of autonomy software, and it routes money toward companies that write coordination and control code rather than toward companies that bend metal.

The Navy is running the same calculation on a larger airframe. An August 31 request for information for a carrier-based collaborative combat aircraft, with industry responses due this month, specifies capacity for four 2,500-pound class munitions in roughly the footprint of an F/A-18E/F, catapult launch and arrested recovery up to Sea State 5, and compatibility with the Joint Precision Approach and Landing System. The Navy stated it will accept external weapons carriage rather than internal bays, trading stealth for lower unit cost. Two services, two very different programs, and the same design constraint at the center of both: the airframe has to be cheap enough to lose.

Iran’s Revolutionary Guard Corps Navy claimed on September 8 to have captured an Anduril Dive-LD autonomous undersea vehicle near the entrance to the Strait of Hormuz, releasing images of the Anduril-branded craft. U.S. Central Command spokesman Navy Captain Tim Hawkins said the vehicle had been dead in the water for more than a day before any Iranian action, was defective and malfunctioning well beforehand, and carried no classified sonar or radar equipment and collected no sensitive data.

The Dive-LD is a three-ton torpedo-shaped autonomous submarine built for multi-week missions in intelligence collection, mine countermeasures and anti-submarine work, procured under the Replicator initiative at a reported unit cost near $2.5 million. Anduril said the vehicle had already logged thousands of hours across months-long operations in the CENTCOM theater.

Compare the response to what a captured manned platform or a downed $30 million Reaper produces. There was no recovery operation, no diplomatic incident and no operational pause (that was publicly announced). Iran spent a naval operation retrieving a broken $2.5 million machine with nothing classified aboard, and the United States lost a unit of inventory. Attritable systems are supposed to behave exactly this way, and this is the first time the concept has been tested in public against an adversary that wanted a trophy.

Anduril is having the quarter of its life while remaining private. Taiwan signed a NT$26.9 billion contract, roughly $847 million, in late August for 1,554 Altius-700M loitering munitions and 478 Altius-600 ISR aircraft, with deliveries starting in the fourth quarter of 2026 and running through June 2033. Secondary market pricing in early September implied a valuation near $100 billion against the $61 billion mark set in the company’s May raise.

Ukrainian air defenses shot down Geran-5 jet-powered attack drones near Kyiv on consecutive nights in early September. Ukrainian military intelligence puts the Geran-5 warhead at approximately 90 kilograms against roughly 20 kilograms on the original Shahed-136, with a cruising speed of 500 to 600 kilometers per hour against roughly 185, a length near six meters and a wingspan up to 5.5 meters. The aircraft uses a Chinese-supplied Telefly jet engine with greater thrust than the Geran-3. By August, Russian production of jet-powered Geran variants had surpassed piston-engine output for the first time.

Speed is the entire change. A propeller-driven Shahed moving at 185 kilometers per hour can be engaged by mobile gun teams, interceptor drones, helicopters and in some cases small arms, which is why Ukraine has been able to hold intercept costs down at all. At 600 kilometers per hour with a 90 kilogram warhead, the cheap layer of the defense stops working and the defender is pushed back toward surface-to-air missiles and directed energy. That is the same cost-per-engagement problem the U.S. Army spent $464.8 million on lasers to solve, arriving from the offensive side faster than the defensive side can field an answer.

The supply chain underneath it runs both directions and only one of them is restricted. Russia is sourcing Chinese jet engines for one-way attack drones while Beijing’s own export controls, effective since September 1, 2024, restrict outbound sales of aero engines above 16 kilowatts, infrared imaging, high-precision inertial measurement units, synthetic aperture radar and long-range wireless communications.

Those are the same component categories Western manufacturers need. European buyers are responding by shortening their own timelines: Lithuania’s defense ministry bypassed standard procurement rules in early September to acquire trial batches of interceptor drones and short-range and passive radars from multiple manufacturers, testing them under operational conditions before selecting suppliers rather than after.

The week separated companies with funded contracts from companies with announcements, and the market did not treat them the same way.

AeroVironment (AVAV) delivered the sector’s most important print. Fiscal first quarter revenue of $480.5 million beat consensus near $458 million, adjusted earnings came in well ahead of expectations, and funded backlog hit a record $1.5 billion on a 1.4 book to bill. Shares gained roughly 10% on the day and remain down about 39% year to date. Bank of America cut its target to $185 from $225 and kept a Buy rating. The next catalyst is conversion, specifically whether the directed energy segment can scale manufacturing in Albuquerque fast enough to turn the E-HEL award into recognized revenue.

Draganfly (DPRO) had the busiest week in the small-cap group on the back of Canada’s drone announcement. The company qualified across all five capability streams of the Defence Drone Initiative Marketplace, disclosed a five-year tactical ISR agreement with the Canadian Armed Forces, and named a retired Canadian Forces colonel on September 9 to lead its Canadian defense and security business. Draganfly also cited an FAA Section 44807 exemption granted September 1 for heavy-lift operations above 55 pounds, and second quarter revenue up 26% year over year.

Unusual Machines (UMAC) put $20 million into XTEND, the Israeli tactical robotics firm, giving it a strategic and economic relationship with a combat-proven autonomy company. That follows the September 3 Altana partnership aimed at automating supplier verification against NDAA and FCC rules. Second quarter revenue was $16.7 million, up 687% year over year, which speaks to how small the base was a year ago and how quickly domestic component demand has moved.

Palladyne AI (PDYN) saw chief executive Ben Wolff buy 17,121 shares in the open market at a weighted average price of $5.79 on September 8, and management presented at the Jefferies Global Industrials Conference on September 9 and Lake Street’s Best Ideas Growth Conference on September 10. Open-market insider buying is rare in this group, where the flow has run heavily the other way.

Red Cat Holdings (RCAT) had a quiet week, trading between $7.99 and $8.22 through September 11 and sitting down roughly 28% over the trailing twelve months, with no new award following the Havoc maritime autonomy partnership. **Kratos Defense (KTOS)** also went without a new disclosure inside the week after announcing a contract worth more than $20 million on September 1 for mobile SATCOM gateways serving an Asian defense customer. Both names remain levered to the same low-cost, high-volume procurement shift the Air Force and Navy solicitations describe.

AeroVironment posting a record $1.5 billion funded backlog on a 1.4 book to bill, with the stock still 62% below last October’s high.
Canada pledging to go from 2,000 military drones to an industrial base that can produce millions in two years, with a third of new production permanently routed to Ukraine.
A drone incursion over the San Diego control tower costing 400 flights, against roughly 60 certified counter-drone officers nationwide and 18,500 agencies that need them.
The Air Force skipping the feasibility phase entirely to buy cargo planes that launch AI-controlled swarms. The Navy trading stealth for unit cost on a carrier drone before it has picked a vendor.
Iran seizing a $2.5 million American undersea drone and the Pentagon calling it broken.
Russia fielding a 90 kilogram, 600 kilometer per hour attack drone built around a Chinese jet engine.

Capacity is the binding constraint in every one of those stories. Demand was settled two years ago, and this was the week the sector showed how much it still cannot build, certify or crew fast enough to meet it.

$DRNZ, the REX Drone ETF, seeks to track the VettaFi Drone Index, providing exposure across the full drone ecosystem: combat, surveillance, logistics, commercial, and counter-drone.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the REX Shares. To obtain a Fund’s prospectus and summary prospectus call 844-802-4004 or visit rexshares.com. Read prospectuses carefully before investing.

Investing in the Funds involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Funds.

The Fund, Trust, Adviser, and Sub-Adviser are not affiliated with the Fund’s underlying securities.

Funds distributed by Foreside Fund Services, LLC, member FINRA.