Airport scanner makers ramp up production to meet federal deadline

Monday, January 28th 2002, 12:00 am
By: News On 6

NEWARK, Calif. (AP) _ Workers in blue lab smocks at InVision Technologies carefully assemble and test sophisticated bomb detection scanners, which Congress wants in every U.S. airport by year's end.

It's a multibillion-dollar federal commitment, and as one of only two FAA-approved makers of the scanners, InVision, along with L-3 Communications Holdings Inc., of New York, stands ready to reap much of those profits.

``They are in position to get a huge share of the spoils,'' said Chris Tavares, an analyst with Metro Trading Inc. in Deerfield Beach, Fla.

Whether that makes InVision a good investment is another question, Tavares said. Many analysts feel security-related stocks are overvalued, and InVision and L-3 have said they won't meet the deadline, giving rivals a potential opening in the airport scanner market.

Invision's stock soared from $1.90 to as high as $47 after Sept. 11, and L-3, which is more diversified, jumped from $60.70 to peak at $98.07 in October. InVision closed Friday at $37 and L-3 at $96.70.

InVision's fortunes have always been linked to international terrorism. Launched in response to the 1988 Pan Am Flight 103 bombing, it went public in 1996, a good year for business after TWA Flight 800 exploded off Long Island that summer.

Since Sept. 11, InVision has been preparing for another breakthrough.

``While all the high tech companies are slowing down, we are speeding up,'' said Sergio Magistri, chief executive of the 250-employee company, which made $680,800 on revenues of $51.3 million in the first nine months of 2001.

The scanners made by InVision and L-3 use the same technology as medical CAT scans. Bags are X-rayed from many angles, producing three-dimensional images so objects' density can be evaluated for properties of explosives.

Only 160 CT scanners, 90 percent of them made by InVision, are in about 50 U.S. airports now.

The Airport Security Act, however, requires every outgoing bag to be checked through CT scanners by Dec. 31. It's a tall order, requiring 2,200 CT machines in about 500 U.S. airports.

Both companies are already ordering supplies to build the scanners and they plan to expand their work forces exponentially.

For now, InVision's manufacturing facility is spacious and the working pace has remained somewhat leisurely. But once the federal money beings flowing, it will look more like a World War II munitions factory, running 24 hours a day, seven days a week and producing as many as 50 machines a month, a fivefold increase above current production.

Frank Lanza, chairman of New York-based L-3, also plans rapid growth, tripling the staff of 80 people who now make eXaminer scanners in a Clearwater, Fla., factory. ``We're anxious to get started,'' he said.

Still, InVision and L-3 now say they can make only half the needed machines this year. Both companies blame federal red tape for withholding the funds they need to ramp up production.

``It is a little frustrating, waiting to get the go-ahead,'' Lanza said.

The newly formed Transportation Security Administration, which takes over airline security from the Federal Aviation Administration on Feb. 17, has enough money to start production _ $293 million already appropriated and about $2.5 billion expected from increased ticket fees _ but has yet to award any contracts.

A TSA spokesman said the agency hopes to enlist other companies to meet the deadline, either by licensing the technology of InVision and L-3 to other manufacturers, or by persuading makers of medical CAT scanners to get into the bomb-detection business.

Other companies are lobbying the FAA to include alternatives, such as the neutron-based scanners of Ancore Corp. of Santa Clara, Calif., or explosive-detection devices being developed by X-ray equipment maker Heimann Systems Corp. of Pine Brook, N.J.

Some airports, such as San Francisco International, are pre-ordering scanners from InVision and L-3, on expectations of government funding.

Meanwhile, both L-3 and InVision are developing other security scanning products such as handheld wands, scanners for people to walk through, ``body cavity scanners'' and other detectors of weapons and explosives.

Servicing and replacing the CTX machines, which last about eight years, could also provide long-term business as more of the scanners are used in the world's 1,400 airports.

Scanners now represent just a fraction of the business at L-3, a spinoff of the 1996 Lockheed Martin Loral Corporation merger that has 22,000 employees and made nearly $2.7 billion in revenue last year.

But Lanza projects rapid growth.

``We think it is a sustaining business of about $600 or $700 million a year,'' he said. ``It's a good niche business once this bow wave is over.''

Until Sept. 11, L-3 found the U.S. market to be weak, selling 98 percent of its scanners in Europe. Now, the company expects a fivefold increase in staffing and a tenfold increase in profits this year.

Europe also has been the primary market for InVision, which started making its machines in 1990.

A key reason scanners didn't sell well inside the United States is that until now airlines had to pay for the equipment.

``Airlines have been against putting these in the airports for five years,'' Lanza said. ``They've got to get behind this or the people won't fly.''