* Shield AI's $1 million V-BAT drone has faced safety

concerns

* Romanian Navy official's fingers severed in V-BAT test

in May

* Whistleblower alleges company hid mishaps from

customers

* Shield AI says it believes whistleblower claims lack

merit

By David Jeans

NEW YORK, June 5 (Reuters) - A year ago, Ryan Tseng, the

head of U.S. defense tech startup Shield AI, announced his

company had turned a new page.

After a gory incident that partially severed a U.S. Navy

official's fingers during a test of its V-BAT drone, Shield AI

had addressed safety concerns with new landing gear and warning

stickers near the propeller. "(The) aircraft is, tip to tail,

just a radically better airplane," Tseng told Forbes last year.

Now it's happened again.

A Romanian Navy official's hand was caught in a V-BAT

propeller on May 12 during a Shield AI training exercise on a

boat off the Texas coast - severing two of her fingers and

fracturing a third, a spokesperson for Romania's Ministry of

National Defence told Reuters.

The incident, which has not previously been reported, comes

as Shield AI struggles to overcome years of technical hitches

and safety concerns with its V-BAT, according to interviews with

21 former employees, industry executives and investors, and a

Reuters review of a whistleblower complaint, a lawsuit related

to hostile work environments and company presentations.

Reuters found that the V-BAT has crashed more than 50 times

over the past 18 months, that several staff who raised safety

concerns were dismissed and that a Cessna plane with a Shield AI

employee and his child aboard had to take evasive action to

avoid a mid-air collision with a V-BAT.

Shield AI also allegedly obscured technical flaws with its

V-BAT, which costs about $1 million, to help land military

sales, according to a previously unreported whistleblower

complaint filed in May to the Department of Labor's Office of

Administrative Law Judges and reviewed by Reuters.

Shield AI acquired the V-BAT, a vertical takeoff and landing

(VTOL) unmanned aircraft designed for military uses, when it

bought Martin UAV in 2021.

The company didn't make Tseng, or Gary Steele, who replaced

Tseng as CEO last year, available for an interview. In a

statement to Reuters, Shield AI said it had a strong safety

record and defended the performance of its drones, saying

"operational mishaps are common" for a drone like V-BAT.

"V-BAT remains one of the most operationally proven VTOL

aircraft in service today," the company said, adding that the

drone had accumulated 18,000 flight hours since 2019.

Shield AI said the May 12 incident was caused by "a

violation of established safety procedures, not from a product

defect", without disclosing the specific violation.

Romania's defence ministry said it was investigating the

incident and that it would be premature to draw conclusions

regarding fault or whether the incident could have been

prevented.

The Romanian official, whose identity hasn't been disclosed,

had operations to reattach her fingers on May 12 and May 16 at

the University Medical Center New Orleans. Her condition

deteriorated and she was sent to the Walter Reed National

Military Medical Center in Maryland, where she remained as of

May 25, the ministry said in a statement, without providing

further medical details.

Romania's Naval Forces, which signed a $30 million agreement

with Shield AI last year for the V-BAT, said the contract

remained in effect.

SHIELD AI VALUED AT $12.7 BILLION

Shield AI, which was valued at $12.7 billion in a March

funding round co-led by JPMorgan ( JPM ), has emerged as one of

Silicon Valley's largest defense tech bets, positioning itself

as a key provider of drones and autonomous software to rearm the

Pentagon as wars rage in Ukraine and the Middle East, and as

tensions grow with China over Taiwan.

In February, U.S. Vice President JD Vance was touring

Armenia when he was shown the latest V-BAT model, which had just

been sold under Washington's first arms sales to the country.

"Holy shit. Look at this thing!" Vance said in a video

posted on LinkedIn, circling the drone in a gilded hall. "It's

going to do great things for you guys."

Other drone startups have faced setbacks as they race to

deliver nascent technology to the battlefield. Reuters has

previously reported that other drone companies have suffered

after crashes, and a series of U.S. Navy autonomous vessel tests

went awry when unmanned boats smashed into one another.

But Shield AI had a "Silicon Valley mindset, that 'fake it

'til you make it'," said Jacob Miller, a former product manager

who filed the whistleblower complaint in which he alleged he was

fired after raising air-safety concerns. That philosophy, he

said, is "being applied to equipment that can cause severe

immediate harm to people and war fighters".

Miller also filed a lawsuit against Shield AI and senior

director Trey Lindsey in May alleging he was fired after raising

safety concerns.

Responding to Miller's allegations, the Shield AI

spokesperson said the company could not comment on ongoing

litigation: "We believe these claims lack merit, and we intend

to vigorously defend ourselves against this attack on Shield AI

and its mission."

Lindsey didn't respond to a comment request.

DRONE CRASHES MOUNT UP

Shield AI was founded in 2015 by Ryan Tseng - a tech

entrepreneur who sold a phone-charging company to Qualcomm - and

his brother Brandon, a former Navy SEAL. The firm was among the

first venture-backed startups seeking to loosen the grip on

major Pentagon contracts long held by so-called prime

contractors such as Lockheed Martin ( LMT ) and RTX.

But alongside its meteoric growth, including V-BAT sales to

more than half a dozen foreign militaries, Shield AI's drone has

struggled with persistent behind-the-scenes failures.

In the past 18 months, more than 50 of about 200 upgraded

V-BATs managed by Shield AI as part of its internal fleet have

been destroyed in crashes during testing or training, a high

failure rate, according to two people with knowledge of the

matter.

During a NATO-led event in Portugal in September showcasing

unmanned military systems, a V-BAT crash-landed on a runway,

according to a person familiar with the event and two videos

seen by Reuters.

In February, Shield AI announced it was pausing flights for

several weeks to determine the causes of a particularly bad

spate of crashes - including one that ignited a grass fire in

Texas that burned more than 40 acres before it was extinguished,

according to fire records, interviews with emergency crews and

two people familiar with the matter.

Shield AI did not comment on Reuters reporting on the

crashes involving its internal fleet but said that its customers

had experienced only 10 "operational mishaps" since early 2025,

when it upgraded the V-BAT. The company did not elaborate on the

incidents.

WHISTLEBLOWER: SHIELD AI HID MISHAPS FROM CUSTOMERS

When technical shortfalls emerged, the company took steps to

obscure them from military customers, according to Miller's

whistleblower complaint. During one test, Shield AI told the

Greek military that a V-BAT was flying autonomously when in fact

it was being piloted manually, the complaint alleged.

In addition, Miller said Shield AI falsified or scrubbed

data in mishap reports, which are generated and reviewed

internally after each crash, to "create a falsely favorable

narrative" about V-BAT performance, according to his complaint.

He alleged the revised data was used to help secure

contracts with Naval Air Systems Command as well as Greece,

Japan, Norway, Taiwan and Ukraine. Ukraine declined to comment.

The other militaries and NAVAIR did not respond to inquiries.

At times, some Shield AI employees were concerned by the

company's approach to safety.

In July, Shield AI employees were testing a new capability

allowing V-BAT drones to detect and avoid other aircraft. Two

employees flew near the drone in a Cessna as part of the test -

but had to steer the propeller plane out of the way to avoid a

potential crash after realizing the drone had failed to detect

the small aircraft, according to two people with knowledge of

the incident. The young son of one of the employees was also in

the Cessna at the time, the people said.

At least three employees who raised safety concerns in the

past 18 months were fired, or have left the company, according

to people with knowledge of the matter.

Last year, law firm Littler Mendelson was hired by Shield AI

to investigate claims of a hostile work environment and concerns

raised about air safety, according to a person with knowledge of

the matter and Miller. Reuters could not determine the findings

of the investigation.

Littler Mendelson did not respond to a comment request.

X-BAT PENTAGON CONTRACT

Shield AI is now marketing its X-BAT, a newer, larger drone

which is expected to cost about $30 million and is designed to

fly alongside fighter jets as a "loyal wingman".

The company was recently awarded a contract by the

Pentagon's Defense Innovation Unit for the X-BAT, a Pentagon

spokesperson said. The award has not previously been reported.

In an April pitch deck seen by Reuters, Shield AI had

requested $500 million from the Pentagon to help develop four

X-BAT prototypes by 2029, along with company investment to cover

the total cost of $1.3 billion. Reuters could not determine the

ultimate value of the contract. The Pentagon spokesperson

declined to provide further details.

The X-BAT is expected to use the same flight controls as the

V-BAT, according to a presentation to the Indian government in

April last year reviewed by Reuters.

Asked whether the Pentagon was concerned about X-BAT's

reliance on V-BAT technology, the spokesperson said: "We

recognize that risk is inherent to technology development and

innovation, viewing it as a critical learning process essential

to fulfilling our Department's mandate to embrace risk, break

things, and deliver capabilities at speed and scale."