Defense Firms Aim for New Markets : Technology: Declining military spending is forcing contractors to find ways to translate existing knowledge into commercial sales.
Drivers who haul furniture for North American Van Lines are about to get a firsthand look at the forces reshaping the U. S. defense industry.
North American, a unit of Norfolk Southern Corp., last month ordered a $220,000 computerized simulator for testing and training its drivers. The simulator’s builder: a joint venture that includes Perceptronics Inc., a Woodland Hills defense contractor that mainly produces tank- and missile-training simulators for the Pentagon.
With military spending waning, demand for tank simulators isn’t a fast-growth business. So Perceptronics hopes to eventually sell hundreds of driver-training simulators to trucking companies, bus lines and train operators, Perceptronics Chief Executive Gershon Weltman said.
In other words, it wants to go commercial.
Perceptronics has lots of company. The Cold War’s end and the related downturn in U. S. military spending are causing most defense contractors--including those in the San Fernando Valley and Ventura County--to search for other markets where they can turn their military technology into commercial and foreign sales.
Case in point: Hughes Aircraft Co.’s missile systems group in Canoga Park last week announced that it will get about $200 million in subcontracts over eight years for its work on air-to-air missiles being produced for the United Kingdom’s Ministry of Defence. The $1-billion primary contract went to British Aerospace Defense Ltd.
In a recent nationwide survey of 148 U. S. defense companies, 37 said they had successfully begun marketing commercial products based on their defense know-how, and an additional 68 companies said they were studying how to commercialize their military technologies, according to the Winbridge Group, a consulting firm in Cambridge, Mass., that co-sponsored the survey.
Whether that shift will mean more jobs--thousands of which have been lost during the industry’s retrenchment--will depend on how successfully the companies master the commercial sector.
“We have to see how the new businesses emerge,” Lockheed Corp. spokesman Scott Hallman said.
Lockheed, the Calabasas-based aerospace giant, already gets 30% of its $10 billion in annual sales from non-Pentagon sources, but the company wants to raise that to 40% over the next few years.
Besides building jet fighters and missiles, Lockheed makes commercial telecommunications satellites, refurbishes Boeing 747 commercial jetliners, manages airports, and provides data processing and information services to city agencies, the U. S. Postal Service and other entities.
The shift to commercialization could create pockets of hiring, however. Marquardt Manufacturing Inc., a Van Nuys company that makes bomb and missile hardware, recently signed a tentative agreement to build fuselages for a business jet being developed by Swearingen Aircraft Inc. in Texas. Marquardt said the deal, if finalized, would result in more than 300 new local jobs and be worth $120 million to the company over 10 years.
Overall, the transition to the commercial side will be smoother for some companies than others. A few defense contractors already have sizable stakes in the commercial market; others will test the waters for the first time.
For instance, U. S. Department of Defense sales now account for about half of Datron Systems Inc.’s total sales ($59.6 million in fiscal 1991), compared with 95% in 1985 when the Simi Valley-based maker of satellite tracking equipment and communications systems had its initial public offering, said Thomas Baker, chief financial officer.
“Our objective is to go even further,” Baker said, with Department of Defense contracts accounting for only 20% to 25% of Datron’s business in the mid-1990s. Earlier this year, Datron was awarded a $20-million contract to provide radio communications gear to a European country, which it did not identify.
Perceptronics, on the other hand, derives a mere 4% of its sales from commercial customers. “We’re shooting to make that at least 20% or 25%” by “hitting the commercial market on several fronts,” Weltman said.
The company’s other commercial products include computer software that helps engineers design and analyze aircraft cockpits and crew configurations, and software used in designing electronic maps.
Lockheed is confident that its commercial pursuits will pay off because it’s “sticking to closely related markets where we’re applying technologies we’ve developed over the years,” Hallman said.
Lockheed also is a subcontractor to Motorola Inc. on a proposed global portable telephone network called Iridium, an enormously complex system that would employ 77 satellites and cost more than $3 billion to deploy.
Datron says it’s also working with Motorola on devising the ground stations that would track the satellites. However, Iridium still needs U. S. approval before it can be launched, and critics contend that there aren’t enough portable-phone customers to support the plan.
Datametrics Corp. in Chatsworth is also eyeing space in its quest to get more commercial sales. The company’s three big commercial awards last year included a $7-million contract with McDonnell Douglas Corp. to make data printers for the proposed space station.
Datametrics, known for making rugged military printers, plotters and keyboards, today gets 15% to 20% of its business from commercial clients, “and our strategic plan calls for that to be 40% within five years,” said Gerald A. Horwitz, senior vice president for business development.
Special Devices Inc. in Newhall is also dramatically changing its business mix. For 30 years, the company made products that ignite rocket motors in U. S. missiles. But now its focus is on producing “initiators” that trigger automobile air bags to inflate.
“There’s no doubt that the automotive initiator is our growth strategy,” said Robert W. Benson, Special Devices’ chief financial officer.
Special Devices took a major step in that direction in February when it got approval to start shipping initiators to TRW Inc. for TRW’s air bag systems that are being sold to General Motors Corp. The value of the contract is not being disclosed, but it also calls for Special Devices to eventually supply TRW with initiators for its Ford, Toyota and Honda air bags as well.
The initiators and other automotive components account for about 37% of Special Devices’ sales, which totaled $24.2 million in its fiscal year that ended Oct. 31. But within two years, “you will see it surpass 50%” of sales, Benson predicted.
HR Textron, a Valencia-based defense arm of the conglomerate Textron Inc., isn’t that specific in planning its commercial sales, which today account for less than 10% of HR Textron’s business. But the company is studying commercial markets where it might transfer its expertise in hydraulics and other flight controls used on military aircraft, said Rod Hanks, vice president of human resources.
For instance, HR Textron one day might sell components for use on the commercial planes built by Cessna Aircraft Co., Hanks said. Why Cessna? Because Textron Inc. last month bought Cessna for $600 million to--you guessed it--further cut its dependence on defense markets.
Defense Companies Go Commercial Many of the region’s defense contractors, facing cutbacks in U.S. military spending, are pursuing more commercial and/or foreign business to maintain their growth. Here are some examples of the non-Pentagon ventures they have targeted. Company: Datametrics Main Defense Products: Rugged printers / keyboards Commercial Ventures: High-speed color printers/Fax devices Company: Datron Sytems Main Defense Products: Communications equipment Commercial Ventures: Foreign & private commun. systems Company: Lockheed Main Defense Products: Aircraft / missiles / electronics Commercial Ventures: Satellites / aircraft repair/data services Company: Marquardt Main Defense Products: Bombs / missiles Commercial Ventures: Business-jet fuselages Company: Perceptronics Main Defense Products: Tank simulators Commercial Ventures: Truck simulators Company: Special Devices Main Defense Products: Missile igniters Commercial Ventures: Car air-bag triggers Company: HR Textron Main Defense Products: Aircraft components Commercial Ventures: Industrial valves / aircraft hydraulics Source: Company reports
