9/11: A Windfall for Homeland Security Companies
Business + Economy

9/11: A Windfall for Homeland Security Companies

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While there’s certainly an argument to be made over whether government spending on homeland security since 9/11 has made the nation safer, companies like Rapiscan Systems, makers of security screeners for passengers and cargo, have seen a decade of financial bonanza.

Rapiscan’s parent company, OSI Systems, reported revenues of $656.1 million, a 10% increase from the $595.1 million reported for fiscal 2010. The company has had steady growth and income since the Sept. 11, 2001 attacks, as the Department of Homeland Security tightened screening at airports, sea ports and borders – all in response to the trail of the 9/11 terrorists.

Rapiscan , based in California, is not alone. According to the National Priorities Project, a liberal think tank, homeland security spending has risen from $16 billion in fiscal 2001 to $69.1 billion in 2011 – a 300 percent increase. By another measure, the Center for Strategic and International Studies reported in August that Department of Homeland Security contract spending for security devices and technology nearly doubled from $5.4 billion in 2004 (the first year DHS was fully operational) to $10 billion in 2010.

All Rapiscan knows is that it’s selling technology almost faster than it can make it. Prior to 9/11, the company did some work for airlines, primarily at checkpoints with X-ray machines and metal detectors; but since that time, Rapiscan has “expanded tremendously,” according to Executive Vice President Peter Kant.

”Since that point, the company has opened two additional manufacturing plans, one in Ocean Springs, Mississippi, and one in Apex, North Carolina,” he said, adding jobs exponentially.

Over the last ten years, Rapiscan has more than tripled its employment, up to about 800 employees from an initial size of about 200, he said. Those employees range from highly educated engineers who are designing the state-of-the-art screening equipment, to the manufacturing workers who actually build them.

“We put out 3,000 systems a year,” Kant said. “There are lots of people working on those manufacturing floors.” Engineers are concentrated in Torrence, Calif., and in a laboratory in Sunnyvale, Calif., the high tech mecca. All together, the company has averaged 17 percent a year growth in annual revenues.

Companies like L-3 Communications and Smith Detection, which also make screening devices, also have a share of the security market. Interestingly, one of Rapiscan’s biggest competitors these days comes from a state-supported company called Nuctech in China that is putting screening devices in China’s airports – the fastest growing airport construction in the world.

Despite the concerns in Congress over the debt and deficit spending, homeland security is unlikely to take a serious hit, experts say, because of overriding concerns about preventing another 9/11 terrorist attack. Rep. Aderholt, R-Ala., chair of the House Appropriations subcommittee on homeland security, has said that he intends to walk a very fine line between security and budget concerns.

The debt deal reached by Congress late this summer placed a cap on all homeland security expenditures, but underneath that cap, there is discretion on where the money goes.

“I really do think that there was a genuine concern, a genuine understanding that there was a greater need for a greater investment in homeland security after 9/11,” said Guy Ben-Avi, one of the authors of the CSIS report. “The thinking was ‘it happened once, it can happen again, we need to be better prepared.”

Ben-Avi said strengthening aviation security, the primary breach that allowed the 9/11 attacks to happen, was the “snowball that caused an avalanche of investment in homeland security more broadly… and a catalyst (of efforts) to counter the emerging threats that are out there and that will be targeted at us in the foreseeable future.”

Gavin Long, managing director of Civitas, a national security management consulting firm, sounded a cautionary note. He said that some sectors of the homeland security industry are poised to do well, but that others may not, because of competition or changing security needs.

“From a macro level, I’m not so bullish, but there are market segments that are receiving a lot of growth, and there are market segments that have plateuaed and are frankly going to see declines,” he said.

But OSI’s President and CEO, Deepak Chopra (note: not the author by the same name) sees good things for the future of his company in the security sector, saying that the company, heading in to fiscal 2012 is “excited about our growth prospects. Our backlog of $304 million as of June 30, 2011 is 27% higher than the prior fiscal year, and represents a new record year-end backlog."