Frank Lanza may not be masterminding consolidation of the U.S.
defense industry, but he is one of its dynamos. Barely a day goes
by without another high-tech, specialized supplier approaching him
with a 'For Sale' sign in hand, hoping to be acquired by L-3 Communications.
"We have bought over 19 companies—$3 billion worth—since
last Farnborough," Lanza told Show News. Two years ago L-3 came
here as a $2 billion company headed for $4 billion with the pending
acquisitions of Raytheon's Aircraft Integration Systems (price:
$1.13 billion in cash), Spar Aerospace ($182 million), PerkinElmer's
Detections Systems business ($100 million cash) and others. This
year's revenues are headed for $6.5 billion.
"The pipeline for acquisitions remains full," said Lanza. "There
are a large number of properties with annual revenues ranging from
$50 million to $300 million that could add substantially to L-3's
business segments."
L-3 Communications is now the largest military training and simulation
company in the U.S., outstripping both Lockheed Martin and CAE,
and the largest military maintenance, repair and overhaul (MRO)
and aircraft modification business, with annual revenues of $1.5
billion. It believes it is also the largest supplier in the U.S.
of airport security equipment.
Lanza was instrumental in forming L-3 just seven years ago when
Lockheed Martin spun off 10 military electronics and communications
companies in the wake of its merger with Loral Corp. Lanza's vision
was to leverage that $1 billion base into building a 'Sears catalog'
of specialized components in areas encompassing secure communications,
datalinks, space communications and satellite control, military
communications, avionics, microwave, telemetry and ASW. Now L-3
claims to offer a broader range in IRS (Information, Reconnaissance
and Surveillance) than anyone in these areas, and is looking for
more acquisitions to fuel future growth. "We get our best value
in small niche companies that could be underperforming and need
resources—human, marketing and financial. We buy them good
and integrate them fast," said Lanza. "There is still a lot of consolidation
needed in the vendor base."
As its capabilities have expanded, so L-3's horizons have broadened.
As well as supplying components it provides major subsystems in
communications, and is increasingly taking on the role of prime
contractor in upgrade and modification programs.
The purchase two years ago of Aircraft Integration Systems (AIS)—the
old Raytheon E-Systems—has led to the new emphasis as prime.
L-3 already built most of the secure datalinks used on platforms
in the ISR world, as well as displays, controls, signal processors—so
AIS was a natural way of getting more of its products onto the world's
ISR platforms, along with the task of integrating them. With AIS,
L-3 inherited the responsibility of major integrator for the UK's
ASTOR program, while leaving Raytheon as prime contractor and supplier
of the radar.
With the acquisition of Spar Aerospace, L-3 gained further expertise
in integrating its products into an airframe, such as the cockpit
upgrade for 15 Lockheed C-130s for Greece.
Defense is a good business for L-3 Communications, whose
activities range from systems support on the Predator and
Global Hawk UAVs to providing interpreters to the U.S. Defense
Intelligence Agency.
"L-3 had a very good start to 2004 with solid results in
our major businesses," said Frank C. Lanza, chairman
and chief executive officer. "Our secure communications and
intelligence, surveillance and reconnaissance, training, simulation
and support services and aircraft modernization and maintenance
businesses all performed very well in the first quarter of
2004."
The company reported a 39.7% jump in sales to $1.52 billion
(13.7% was organic, the remainder from acquisitions), and
a 44.9% increase in operating income to $72 million.
"For 2004, we expect to achieve our objective of 20% top-line
and bottom-line growth, including 10% to 12% organic sales
growth," Lanza added.
L-3's overseas business now accounts for 20% of its turnover. "Those
customers need someone to integrate their aircraft, and large companies
are just not interested, nor are they competitive in six, seven
or eight aircraft," Lanza noted.
L-3 is about to deliver the last of 18 upgraded AP-3C aircraft
to Australia ("They are virtually new aircraft now,") said Lanza.
It is also bidding on advanced mission systems and structural upgrades
for six New Zealand P-3Ks and structural and avionics upgrades for
five C-130Hs there.
Lanza believes L-3 can continue to grow substantially even
if defense spending is reduced in the future. Any reductions will
likely impact new platforms rather than sacrifice readiness or reduce
the DoD's ongoing transformation efforts. "As a result, there will
be strong emphasis on the modernization of present assets—old
shooters with new technology," said Lanza, "as well as
investment in precision delivery systems, command and control, network-centric
communications, ISR, unmanned aerial vehicles and advanced sensors.
"In addition, networked combined arms training and spiral insertion
of advanced technology products will provide growth opportunities
for L-3 even if the defense budget is modest or flat."
