Best Defense

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How's this for a product lineup: sensors for cutting-edge military drone aircraft, minivan-size airport baggage scanners, lifelike human dummies that breathe and bleed? If it sounds like a grab bag, that just goes to show how rapidly the defense business is changing. And the best model for a post-9/11, homeland-security-era defense firm may be L-3 Communications, which makes each of these unique high-tech devices.

Founded just six years ago in New York City, L-3 last week announced $4 billion in 2002 sales, ranking it among the nation's top 10 defense contractors, just below such industry giants as Lockheed Martin and Boeing. L-3's fast start is widely credited to CEO Frank Lanza, 71, who was head of Loral Corp., maker of electronic warfare systems, when it was sold to Lockheed in 1996. With partner Robert La Penta, then a Loral executive, and financing from Lehman Bros., Lanza bought 10 Loral electronic-manufacturing divisions, glued them together, bulked up their research-and-development units and named them L-3 (for Lanza, La Penta and Lehman Bros.). Lanza took the company public in 1998. Now L-3 thrives in two fast-growing markets: high-tech military gear and civilian security.

The firm, best known for its military-communications and reconnaissance systems, solidified its reputation in the 2001 war in Afghanistan, when its technology enabled commanders at a base in, say, Tampa, Fla., to see real-time images of Afghan battlefields. Contracts soon multiplied. "The U.S. has plenty of firepower," says Kevin Landis, chief investment officer of Firsthand Funds, a tech-focused mutual-fund group in Silicon Valley. "But Frank Lanza tells them where to point it." L-3's military customers also include Canada and other NATO countries.

On the morning of Sept. 11, 2001, Lanza's professional world view changed. From the windows of his 34th-floor Manhattan office, he saw the attacks on the World Trade Center, and in those minutes the national-security business was redefined. "Nobody gave a damn about homeland security before that morning," he says. "Suddenly the whole world was interested."

In response, L-3 has been scrambling to devise civilian applications for its technology. Over the past year or so, the company has been on an acquisition binge, buying smaller companies in electronic-communications niches. A recent purchase was Wescam, a Canadian maker of stable cameras used by the movie industry to film action scenes--cameras well suited for aerial duty. And L-3 is one of the few suppliers of those hulking new airport luggage scanners mandated by Congress to screen checked bags. L-3's version uses technology originally developed to process military surveillance and reconnaissance photos. The company produces other scanning devices, designed to reveal concealed weapons (including any secreted inside human-body cavities), that are based on technology it supplied to help soldiers and intelligence operatives detect Taliban fighters hiding in Afghan caves.