Prospect for technological change, new competitors.... Should be very interesting as market cap is approaching a half a billion.
BIZFEATURE-Checked baggage screening a monumental task for US
By John Crawley
WASHINGTON, Dec 8 (Reuters) - With a new law giving the government and private industry clearance to proceed on the overhaul of U.S. air security, it would appear that business is ready to take off.
But while companies scramble to seize the opportunity in a multibillion dollar market created by Sept. 11, their vision for success is already blurred by bureaucratic realities, technical hurdles and the enormity of the unprecedented mandate laid out by Congress and the Bush administration.
A cornerstone of the air security law requires the Transportation Department to develop a system by the end of next year to install machines to screen 100 percent of checked baggage for explosives.
Many lawmakers feel that stronger cockpit doors, air marshals, tighter gate access and probative ticketing procedures as well as a new passenger screening force under control of federal authorities has considerably lessened the risk of another catastrophic hijacking.
But still vulnerable, they believe, are the underbellies of big commercial aircraft where checked baggage that is rarely scanned for bombs is stored during flight. They want this opening to potential sabotage sealed, and fast.
"There is no doubt that meeting the deadline for deployment will be a difficult task," said U.S. Rep. John Mica, a Florida Republican and chairman of the House of Representatives Transportation aviation subcommittee. "Few agencies have ever been directed to undertake such a formidable assignment."
The government has spent more than $440 million on explosive detection systems in the past five years with some success and a big dose of controversy, particularly over the "bulk" screening machines at the center of the new mandate.
CONGRESSIONAL PRESSURE
These devices, which use CAT Scan technology and can screen 150 bags per hour, cost $1 million to make and about half that to install. There are 161 at dozens of U.S. airports, but it was only under pressure from Congress after the hijacking attacks that airlines began to use them properly and the FAA accelerated repair of those that did not work.
Nevertheless, expectations for success are high as the market for explosive detection equipment skyrocketed with passage of the air security law in November. The price tag for 2,000 machines by the end of 2002 is estimated between $2 billion and $5 billion.
The massive undertaking largely falls on the only two companies who make bulk explosive detection equipment that has been certified by the FAA, which before Sept. 11 had planned to begin phasing in 100 percent checked bag screening in 2009.
InVision Technologies Inc. <INVN.O> is a Newark, California, company with about 90 percent of the market, while L-3 Communications of Sarasota, Florida, is a long-time defense contractor best known in aviation circles for development of flight data recorders.
Both InVision and L-3 Communications <LLL.N> say they will do whatever it takes to meet the demand, including outsourcing work. "We have never been capacity limited," Frederick Muntz, InVision vice president, told Mica's committee on Friday.
But beyond manufacturing, there is concern about technological hurdles.
Reliability of the L-3 product has been an issue. Some L-3 machines have gathered dust in warehouses because of software glitches. Frank Lanza, company chairman and chief executive, assured lawmakers the problems have been fixed.
Also unanswered is whether detection hardware by both companies can be successfully integrated with current airport baggage equipment for a seamless screening and baggage loading system that will work fast enough to suit the airlines.
These questions, as well as concerns about emerging technologies that might render current devices obsolete, place enormous pressure on manufacturers to resolve design, software and reliability problems before detection systems are distributed on a level never seen in U.S. commercial aviation.
OTHER COMPANIES
At least two other companies, Heimann Systems Corp. of Pine Brook, New Jersey, and Woburn, Massachusetts-based PerkinElmer Detection Systems, a unit of PerkinElmer Inc., <PKI.N> are vying for FAA certification for their detection technology for use at big airports. At least three other firms are looking for contracts to build bomb detection equipment at smaller ones.
Muntz alerted Congress to a history of bureaucratic pitfalls, including funding shortfalls. He said he was concerned about possible changes in the direction of government spending or delays in releasing money to manufacturers and vendors.
Muntz, whose company has begun to invest in capacity to meet the 2002 deadline even though most orders are coming from foreign customers, said a "good portion" of the money intended for explosives detection over the past five years wound up going to other projects.
Earlier this year, the Transportation Department said 11 InVision scanners were not installed previously because money was not available to pay for it. "Every day that passes without funding and equipment orders is another day of unnecessary delay in meeting the 2002 deadline," Muntz said.
Mica promised close scrutiny of how money is spent under the strict timeline.
"I am concerned that the pressure to meet the deadline will cause DOT to spend huge amounts of money quickly without any assurance that the equipment they buy will detect explosives that could bring down an aircraft," he said.
Steven Zaidman, associate FAA administrator for research and acquisitions, said the agency is moving aggressively to address certification and procurement options but would not relax standards just to get assembly lines rolling sooner.
Transportation Secretary Norman Mineta said almost two weeks ago the government would not meet a different baggage screening deadline next month, triggering an angry response from Congress and nervousness elsewhere that the schedule to implement the air security law is too ambitious.
While experts say the December 2002 deadline can be met, they also point out that it took almost four years to get the world's first checked baggage screening system running at Manchester Airport in Britain. It came on line in 1996. Detection systems at other airports in Britain also took many months or even years to complete.
09:28 12-08-01 |
