Is North Dakota's Investment in the Drone Industry Starting to Pay Off?

After years of investment, leaders say jobs are starting to come.

by Andrew Hazzard, Grand Forks Herald / August 15, 2017
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(TNS) -- Over the last decade, Grand Forks has become increasingly tied to the drone industry, so much so that a drone has appeared in the official logo of Grand Forks County, a spot previously reserved for the Red River.

The state of North Dakota has invested $17 million of public money into infrastructure at Grand Sky technology park at Grand Forks Air Force Base in the hopes of attracting high-paying jobs and industry to the region.

This year, the state Legislature approved $3 million in new money to be invested into the drone business, according to the North Dakota Department of Commerce, bringing the state's investment in the industry to $38.1 million since 2005.

After years of investment, leaders say jobs are starting to come.

On Aug. 3, defense contractor and aerospace giant Northrop Grumman announced the construction of a second hangar at Grand Sky Business park, officially moving into phase two of its Grand Forks operation.

Grand Sky president Tom Swoyer said the millions of public dollars poured into the drone industry, referred to as unmanned aircraft systems or UAS by insiders, are paying off.

"I believe the state is absolutely getting a return on investment here at Grand Sky," Swoyer said.

Northrop Grumman has 29 full-time employees in Grand Forks, Swoyer said, and has 30 current job openings. Per the firm's new and expanding business agreement with Grand Forks County, it must have 100 full-time employees by the end of 2017 in exchange for getting a steep discount on its leasehold interest for the next five years.

Northrop Grumman and General Atomics pay the county via leasehold interest and not property taxes, as Grand Sky park sits on federal land owned by the Air Force, according to county director of tax equalization Amber Gudajtes. Northrop Grumman will pay no leasehold interest on its buildings for the first three years, running through 2019, and will have an 80 percent discount on the payments for the following two years. The company did pay $9,250 in leasehold interest on the land in 2016, Gudajtes said.

General Atomics did not request such a deal, and paid $28,000 to the county in 2016.

Keith Reitmeier, eastern region director for Job Service North Dakota, said he met this week with Northrop Grumman about advertising new jobs for their Grand Forks site. The company is currently advertising 12 jobs through Job Service.

"We've been waiting for these jobs, and now they're starting to be posted," Reitmeier said.

Tom Ford, government relations administrator for Grand Forks County, said the park is generating a $2.96 return for every $1 of public money invested into Grand Sky. That number is calculated based on capital investment and employee salaries and benefits, Ford said. It would mean the $17 million in public money is generating more than $50 million in economic activity.

The 50-year lease at Grand Sky is between the county and the Air Force, but Grand Sky is also involved as a third party and has a concurrent 50-year sublease with the county. Ford said the arrangement protects the county in the event businesses leave Grand Sky or stop coming.

Ford believes more companies are considering moving into the park and said some are likely waiting for beyond-visual-line-of-sight flights to begin.

The Federal Aviation Administration approved the Northern Plains UAS Test Site at Grand Sky to begin beyond-line-of-sight operations in December. It is the first site in the nation to receive the authorization. That means test site staff can fly UAS without using a chase plane, currently used to maintain sightlines between the drone and a person to avoid midair collisions. The move will greatly reduce the cost and increase the frequency of test flights, which local leaders hope will attract other large companies to Grand Sky.

Swoyer said corporations such as defense contractor Raytheon and engineering manufacturer Rolls-Royce have expressed interest in Grand Sky. If enough smaller companies have a desire to move into the park, he said Grand Sky would be interested in building a multi-tenant facility.

Startup hopes

While major defense manufacturers are making additions in Grand Forks, the road to success for the drone startup companies housed at the UND Center for Innovation is less clear.

Grand Forks UAS company SkySkopes is in the process of expanding into Minot, but dealt with financial hardships in recent months, including falling behind on rent.

Last month, SkySkopes was significantly behind on rent payments to the UND Center of Innovation. The company entered into an agreement to bring the account current with UND after being in arrears $27,113 as of July 17, according to documents obtained by the Herald from UND.

"That's why we went to the Center for Innovation in the first place," SkySkopes CEO and President Matt Dunlevy said. "They're understanding of startups and I can't thank UND enough, and I can't thank the Center for Innovation enough for believing in us."

Under the agreement, the company has through December to get their account current. UND told the Herald the company is now up-to-date on its payments. Dunlevy said SkySkopes is up-to-date with its employees, too.

"Our employees are well aware of the difficulties of a startup, and we are in good standing with all our employees," Dunlevy said.

SkySkopes received a $375,000 forgivable loan from the city of Minot from its Magic Fund in exchange for committing to 15 full-time jobs within the city in the next three years. The company's Chief Financial Officer Dan Daffinrud is now based in Minot, as are three other full-time employees.

"The aviation community here has also spawned some serious heavyweight subject matter experts in UAS we never expected to encounter when we moved here," Dunlevy said.

He said Grand Forks is still the heart of SkySkopes, but the company feels there is potential for growth in the western Oil Patch.

SkySkopes has seven full-time employees in Grand Forks and recently graduated a group of interns here, Dunlevy said. He said SkySkopes would be interested in a multitenant building at Grand Sky, noting the company needs to find a place where it can conduct flight operations on a daily basis.

"We're out here because we are going to break into the oil and gas industry for UAS services," Dunlevy said of the Minot expansion.

He said the company is now having success in getting contracts to service energy and utility businesses.

"The pilots that we have and the gravitas they bring with their education from UND's UAS program makes finding contracts that much easier, but it's not like they come to us," Dunlevy said.

©2017 the Grand Forks Herald (Grand Forks, N.D.) Distributed by Tribune Content Agency, LLC.