Airport security presents opportunities
By James H. Smith
March 10, 2006
The market for homeland security is expected to reach
about US$170 billion this year
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The events of 11 September 2001 have firmly cemented the need for increased
vigilance at US airports. This watchfulness has generated a market for
high-technology equipment.
Although the market in terms of dollars is dominated by large companies,
such as Boeing, which continues to invest in the homeland security market
and in aviation security by providing solutions to airports and airlines to
enhance security; GE, which acquired Invision Technologies, a
California-based manufacturer of explosive detection machines used in
airports; Cisco Systems which said on 6 March that it is planning a US$51
million acquisition of SyPixx Networks Inc, a privately held maker of video
surveillance software and hardware; and L-3 Communications, a prime US
defense contractor that just won a large order from UK Airport operator BAA
to provide explosives detection equipment at London Heathrow Airport.
Ratheon and Lockheed Martin are also ramping up to provide airport security
solutions, with the former being awarded a two-year US$100 million contract
from the Port Authority of New York & New Jersey, the bi-state agency that
operates John F. Kennedy International and LaGuardia in New York and Newark
Liberty International and Teterboro in New Jersey, to develop an
antiterrorist surveillance system that would monitor the airports'
perimeters.
A Frost and Sullivan research report indicates that the top 30 firms in the
field, which earned a collective US$2.6 billion in 2004, are expected to
bring in more than US$6.1 billion in 2009.
Frost and Sullivan estimates that the global aviation services market is now
worth US$69 billion, with 75 per cent of that represented by airport
security equipment. North America and Europe account for 40 per cent and 35
per cent of that smaller market segment of security equipment.
However, smaller companies are making inroads albeit not at the level of
larger contractors.
Among companies that are poised to benefit from stepped-up airport
surveillance is New Jersey-based Nasdaq-listed small cap I.D. Systems, which
provides wireless fleet management technology for vehicles with access to
commercial aircraft as well as solutions for commercial warehouse
applications.
I.D. Systems had a good run last year.
For calendar year 2005, the company said revenues increased 38.3 per cent to
US$19.0 million from US$13.7 million for 2004. Net income increased 113.8
per cent to US$851,000, or US$0.11 per basic share and US$0.09 per diluted
share, for 2005, compared to US$398,000, or US$0.05 per basic and diluted
share, for 2004.
The growth in revenues and net income was attributable primarily to
increased demand for I.D. Systems' patented Wireless Asset Net system, which
utilizes radio frequency identification (RFID) technology to control, track,
monitor and analyze assets.
Gross profit margin for the year was 49 per cent and for the fourth quarter
was 51 per cent.
The company announced on 10 March the commencement of a public offering of
2.75 million shares of its common stock at a US$21.75 per share. The
underwriters have been granted a greenshoe option for a period of 30 days to
purchase up to 412,500 additional shares of common stock from the company.
Net proceeds to the company from the offering are expected to be
approximately $55.7 million.
Morgan Keegan & Co is acting as sole book-running manager of the offering
and Cowen & Co and Jefferies & Co are acting as co-lead managers of the
offering.
In December 2005, the Transport Security Administration (TSA) published its
final report on the company's wireless vehicle tracking/fleet management
project at Newark Liberty International Airport.
The report concludes that the three-phase project, under which approximately
80 vehicles were monitored, successfully demonstrated that the company’s
radio frequency identification- (RFID-) based Wireless Asset Net (WAN)
system is an effective tool for securing and managing vehicles in the radio
frequency -rich environment of a major US airport.
The TSA also awarded the company a grant in 2004 to integrate RFID-based
baggage tracking capability into the company's WAN vehicle security and
tracking system at Jaxport, the Jacksonville, Florida, seaport operated by
the Jacksonville Port Authority.
Another small cap company involved in the airport security is Nasdaq-listed
American Science & Engineering, a Massachusetts-based company that provides
X-ray inspection systems.
The company attained record revenues for the fiscal year ended 31 March 2005
with reported revenue of US$88.3 million — a 16 per cent increase compared
to revenue of US$76.3 million in fiscal year 2004.
Gross margins earned in fiscal 2005 grew to 34.5 per cent from 26.1 per cent
in fiscal 2004 on increased volume and product cost and overhead reductions.
On 8 February, the company reported revenue of $38.5 million, net income of
US$9.7 million, and net income per share of US$0.95 for the third quarter of
fiscal year 2006. This represents a 64 per cent increase in revenues and a
US$0.72 increase in earnings per share versus the third quarter of the prior
fiscal year.
The company announced on 1 March that it has been awarded a two-phased
contract valued at US$45 million from a Middle East customs agency to use
its patented X-ray detection systems to secure strategic borders, seaports,
and airports. The first phase of the contract has been funded at US$25
million.
And TraceGuard Technologies Inc, traded on the OTC Bulletin Board, plans to
launch a series of products to address airport security concerns. The
company annou9nced on 16 February that it had reached a definitive license
agreement with TraceTrack Technology Ltd for a technology related to
automatic trace collection needed for advanced detection of explosive
materials in luggage.
The initial product which TraceGuard intends to introduce will be called
CarrySafe, intended to be used at airport gates, at entrances to secured
areas and buildings or other similarly restricted locations, for screening
of carry-on luggage used by passengers.
TraceGuard is planning on developing an additional product called HoldSafe,
designed to be deployed in conjunction with existing X-ray systems and
computer tomography (CT) based explosive detection systems currently being
used in luggage screening systems in airports. The HoldSafe is intended for
use in screening larger packages and luggage which would normally be
checked-in. It will use a similar automated explosive trace collection
process as CarrySafe.
Similar to the CarrySafe and HoldSafe products, the company plans on
developing CargoSafe to scan air-borne-cargo.
Plans call for the company to raise US$8.5 million over the next 26 months
for product development.
On 19 January, TraceGuard completed a private placement of 1.6 million
shares, comprising one common share and two common share warrants, for
proceeds of US$1.1 million. In December 2005, the company raised US$300,000
in a similar deal comprised of one share and two warrants.
While start-up companies are always a gamble, it is no stretch to say there
is demand for this type of product for the US as well as export markets.
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