Companies vie for U.S. homeland defense market
Mon Sep 17, 2007 11:39am EDT
By Andrea Shalal-Esa
WASHINGTON, Sept 17 (Reuters) - Valued at upward of $140 billion over the next five years, the growing U.S. homeland security market is luring a range of suppliers, including many defense firms hedging against a slowdown in war spending.
Foreign orders for homeland defense equipment and services ranging from border security to sophisticated cargo screening equipment could generate an additional $100 billion in sales in coming years, industry executives and analysts estimate.
The outlook for the market is more realistic now, executives agree, saying higher projections made shortly after the Sept. 11, 2001 hijacking attacks were far too rosy.
But they warn that despite improvements, the U.S. Department of Homeland Security's purchasing process is still difficult to navigate, funding for projects can fluctuate depending on current events, and the overall sector is often driven by fear rather than sober risk analysis.
Nevertheless, most companies see ample opportunities.
"Raytheon absolutely sees homeland security as a growth market, as an adjacent market to its principal defense marketplace. We are five years into a pretty intensive focus on this market area," Tim Josiah, vice president for homeland security at Raytheon Co (RTN.N: Quote, Profile, Research), told Reuters in an interview.
Lockheed Martin Corp (LMT.N: Quote, Profile, Research), Boeing Co (BA.N: Quote, Profile, Research), Northrop Grumman Corp (NOC.N: Quote, Profile, Research) and Science Applications International Corp (SAI.N: Quote, Profile, Research) are among traditional U.S. defense contractors clamoring for a big share of the homeland defense market.
Foreign companies like Italy's Finmeccanica (SIFI.MI: Quote, Profile, Research), Britain's BAE Systems (BA.L: Quote, Profile, Research), and Europe's EADS (EAD.PA: Quote, Profile, Research) are also active in the homeland defense market.
After 9/11, state, federal and even local governments began shopping for everything from improved radios and fire trucks to surveillance systems and sensors that can detect nuclear, chemical or biological weapons.
Increased concern about protection of private sector infrastructure such as oil refineries and chemical plants could also translate into big revenues.
HUGE OPPORTUNITIES
"Sept. 11 has fundamentally changed the way that America looks at the world, and homeland security is here to stay," said analyst Chris Hellman with the Center for Arms Control and Non-Proliferation, a nonprofit watchdog group.
He said the Bush administration's $61 billion homeland security request for fiscal 2008, that starts Oct. 1, "effectively quadrupled" the $16 billion spending of fiscal 2000. "When you see that kind of influx of money, if you're in industry, you get in," said Hellman.
That 2008 figure includes the budget for the Department of Homeland Security (DHS), as well as salaries for airport screeners and homeland defense spending by the U.S. military. But a significant amount will flow into purchases of equipment and services.
DHS, created five years ago, has made some progress in integrating its 22 separate agencies and has settled into more predictable and reliable contracting routines.
"The pace is picking up, the priorities are being established, and defense and aerospace companies are figuring out how to address the market," said Phil Finnegan, an analyst with the Virginia-based Teal Group.
CHALLENGES SEEN
Privately, some industry executives say homeland security procurement still poses huge challenges with delays in contract award dates, shifting administration priorities, lack of personnel in top jobs, and frequent interventions by Congress.
"It's a mess," said one former government official. "People want to do this business, but they say, 'is it worth the grief?'"
Mark Shaheen, a principal with the Washington-based Civitas Group, said the procurement process was still very immature. "There's not really a central procurement authority."
Many homeland defense projects remain linked to policy debates such as immigration, and over how much privacy the U.S. population is willing to trade for security.
In the defense sector, by contrast, there is a bipartisan consensus about the need for a strong U.S. military.
Lawmakers are also prone to funding sweeping programs like 100-percent cargo screening, even though many experts believe the plan is unrealistic. No one wants to be responsible for the one shipping container that slips through with a bomb.
"All you have to do is demonstrate that an attack is possible, and then you can propose a solution to it," said Jeremy Shapiro, a senior analyst at the Brookings Institution.
Robert Stephan, assistant secretary of homeland security for infrastructure protection, said the crowd of companies scrambling for a stake in the market had thinned somewhat.
Nearly every infrastructure sector was better protected now, and there had been no follow-on attack on the United States after 9/11, he said. But there was still a lot of work to do. "We really need help in doing security planning from a strategic perspective," Stephan said.
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