Uncertainty over future US defence budget developments may alter the marketplace in which L-3 Communications operates, writes Helen Massy-Beresford, but the aerospace and defence electronics specialist will continue to focus on its core business of supplying a broad range of products to the prime contactors, says chairman and chief executive Frank Lanza.
Defence budget pressure and ongoing operations in Iraq are likely to change the way platforms are acquired over the next two years, resulting in increased upgrading of existing assets – a trend which could lead to major upgrades for the right platforms, Lanza predicts. But he is confident of a continuing market for unmanned air vehicles, precision weapons, secure communications, intelligence sensors and reconnaissance platforms.
Formed in 1997, when several former Loral electronics businesses were split off from Lockheed Martin, L-3 has seen revenue grow from just over $1 billion in 1998 to almost $6.9 billion last year on a near-continuous stream of acquisitions. With its recent takeover of US government information technology specialist Titan – at $2.65 billion, L-3’s biggest yet – the company is certain to improve on its 2004 position in the Aerospace Top 100 - at 16 - and its 2006 revenues are expected to approach $12 billion, with Titan boosting earnings by 25 cents a share.
Lanza is confident the integration of Titan will be completed “within four months”, following approval from the authorities and finalisation of the acquisition on 29 July. The newly renamed L-3 Communications Titan is expected to contribute to most of the existing business segments. L-3 has set out a restructuring plan for Titan, including substantial cost reductions, although it hopes to retain the company’s existing culture, Lanza says, “It is synergistic to L-3 and we hardly ever compete with them.” Titan’s product base and its status as a prime contractor on several important programmes underline the importance of the acquisition for L-3.
L-3 has expanded its activities dramatically in two main areas since 11 September 2001. In government services, the addition of Titan is expected to double the business. Homeland security has also grown, from $10-12 million pre-9/11 to around $800 million, and Lanza expects continuing double-digit growth over the next five years.
Lanza cites the acquisition of Integrated Systems from Raytheon as a “home run”, with increasing cash flow and earnings plus improving margins. Similarly, the 2003 acquisition of services business Vertex has been a resounding success and the company intends to expand further into the “high-end services” sector of the business, Lanza says. “We intend to keep growing in niche areas like that in the USA. We’re looking at companies within a $50-100 million range – there are hundreds of smaller companies in the USA that offer high-end services.”
L-3 is also considering further European acquisition and setting up more joint ventures in the Middle East and Asia. “There are new areas of opportunity far exceeding the market place we see in EU countries. We’re looking to expand our footprint in certain key countries in which we have a relationship where we can sell military products,” says Lanza. In the UK, where L-3 has recently opened an office, it is looking at companies between $100 million and $300 million in size and it is also considering establishing a presence in France and expanding its existing footprint in Germany, he adds.
Source: Flight International
