February 02, 2002 03:23
Explosive Detection Firm in Newark, Calif., Prepares to Make Airport Machines
By Chris O'Brien, San Jose Mercury News, Calif.
Feb. 2--With Silicon Valley in the throes of downsizing and layoffs, the swirl of activity at InVision Technologies of Newark seems like a scene from another era. The leading maker of explosive detection systems used in airports is preparing for the biggest boom in its 11-year history.
The company is gearing up to produce the lion's share of the 2,200 machines the U.S. Department of Transportation must install in every airport by the end of this year. It's a daunting prospect: InVision has only made about 260 of them over 11 years.
Now company executives are scrambling to hire workers, expand manufacturing, grease the supply chain and -- most unexpectedly of all -- they're waiting. The DOT is creating an agency to oversee transportation security, and that has meant it's taking the government longer than expected to actually place orders.
"We have focused all our energy since Sept. 11 on getting ready for this," said Don Mattson, InVision's chief operating officer. "We expected orders far earlier than now."
Last November, the federal government enacted a transportation security bill that required 429 U.S. airports to install explosive detection systems -- or EDS machines -- in their baggage check-in systems by the end of 2002. That could require up to 2,200 new EDS machines.
InVision is one of only two companies licensed by the Federal Aviation Administration to make them. It has made about 90 percent of the EDS machines already in use. The other licensed company is L-3 Communications, which has said it can only make half as many machines as InVision.
Since Sept. 11, InVision's stock has rocketed from $3.10 a share to as high as $47, settling at $41.99 on Friday.
EDS machines, which can be 15 feet long, use computerized tomography -- or CT-scan -- to examine luggage. The CT-scan shows the shape and molecular density of every item in a bag and then compares it to a list of potentially dangerous items.
Of the approximately 260 machines InVision has made, 161 are deployed in the United States. Since Sept. 11, orders for more machines began pouring in from foreign governments. So far, the company has announced $71.8 million in new orders for the machines, which cost about $1 million each. To meet that demand, InVision had to begin ramping up.
Fortunately, space wasn't a problem. The company in 1997 had leased a cavernous building with more than 50,000 square feet of manufacturing space in Newark, near the San Mateo Bridge. In the wake of the TWA explosion in 1996, the FAA mandated that every airport install an EDS machine by 2009.
After ordering 54 machines the first year, the FAA didn't place any more orders for several years. The expected surge never materialized and InVision found itself with lots of unnecessary space which it subleased.
All that changed after Sept. 11.
At the time, InVision was making an average of four machines each month, a pace that required only one shift of employees a day. It used to take about 18 days to build each machine.
Now Mattson is reconfiguring a warehouse and space it had once subleased into an assembly line with six stations. The company will then expand to three shifts a day. Eventually, the goal is to build each machine in five days.
When the company reaches what Mattson calls "wartime production levels," most of its space will be used for manufacturing.
Mattson has also been busy contacting the dozens of companies that supply the hundreds of parts needed for a single machine. Because it still has plenty of space, the company can afford to have the parts it needs sitting in the warehouse.
But because of the impending expansion, Mattson has to completely reorganize the supply schedule so that parts arrive just as they're needed. It will require far more complexity and perfect timing. "We want to make sure we don't shut down for the want of a nail," Mattson said.
The company has been building about seven machines each month since Sept. 11 and eventually will be able to make about 50 machines a month.
Mattson is also arranging deals with outside contract manufacturers to pick up the slack on InVision's expected deluge of contracts. And InVision officials will have to train each sub-contractor to meet exacting standards set by the federal government.
At the same time, InVision will have to train dozens of new workers. The company has about 420 employees and expects to hire at least 150 more.
Most of these plans have been set in motion.
Now the company is waiting on the DOT to place an order.
In November, the FAA scraped together about $16.3 million from a discretionary budget and ordered 14 machines from InVision while Congress was still hashing out an airport security bill, which finally passed in November.
The bill created the Transportation Security Agency under the DOT to bolster the nation's transport security. The DOT has spent the past two months putting this new agency together and its new director, John Magaw, was just sworn in three weeks ago. Magaw must now cobble together a staff, which will put together a budget and place the orders with InVision. It's unclear when that will happen, though Mattson has been told "soon."
While InVision is confident the orders will come, previous experience makes the company reluctant to build machines until the government actually orders them.
After ramping up quickly back in 1996, the company struggled financially for several years when the expected stream of orders didn't materialize.
But today, a short delay isn't necessarily a bad thing for InVision, says Noel Atkinson, a research analyst at Emerging Growth Equities in Philadelphia. "It gives them a good chance to ramp up," he said. "They've never really been at that level of manufacturing before."
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