Airport Security

Are Advanced Technology Deployments Enough to Grow the Market?

David Fishering, Industry Analyst

Aerospace & Defense

August 28th, 2008

2

Agenda

• Market Definitions

• Market Forecasts

• Market Drivers and Restraints

• Market Trends

• Market Challenges

• Technology Roadmap

• Competitive Environment

• Market Attractiveness

• Frost & Sullivan Info

3

Market Definitions

Checked Baggage

• Predominately

explosives detection

systems using CT

technology

• Baggage screening

includes legacy X-ray

and AT X-ray systems

• Desktop/handheld

explosives trace

detection are also

included in this segment

Cargo Screening

• X-ray, CT, or trace

systems that can scan

individual packages as

well as palletized cargo

• Systems that identify

substances or

contraband on an

individual

• Technologies include

mm-Wave imaging, Z-

Backscatter, trace portals

and metal detectors

Checkpoint (Passenger)Checkpoint (Carry-On)

AIRPORT

SCREENING

4

Summary of Key Findings

69.1%

26.0%

4.9%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Year

Sp

en

din

g (

$ M

illi

on

)

Checked

Baggage

Carry-on Baggage

Passenger

Screening

Airport Screening Markets: Spending Forecast by Segment (U.S.), FY 2007-2012

FY 2007-2012

FY 2007 FY 2012

2.2%

17.2%

80.6%

6.4%

32.7%

60.9%

Note: All figures are rounded. Source: Frost & Sullivan

5

Summary of Key Findings

52.3%

47.7%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Year

Sp

en

din

g (

$ M

illi

on

)

Equipment Procurement Services

57.1%

42.9%

50.9%

49.1%

Note: All figures are rounded. Source: Frost & SullivanFY 2007-2012

FY 2007 FY 2012

Airport Screening Markets: Spending Forecast for Equipment and Services (U.S.), FY 2007-2012

6

Market Drivers and RestraintsR

estr

ain

tsD

rivers

Strong

Weak

High threat

perception

continues to

drive security

spending

Length of Arrow indicates relative impact

Existing

technology

deployment is

reaching capacity

The demand for

more efficient

systems drives

growth

TSA’s layered

security approach

continues to

provide

opportunities for

new technologies

DHS pilots rarely

lead to mass

deployment

The reactionary

nature of the

airport security

market continues

to create

opportunities

TSA is focusing

on secondary

screening

technologies

Security spending

is being siphoned

away from

technology

Weak

Strong

7

Industry Trends

Data and alarms from sensors are

analyzed at each station

independently

Sensors communicate findings to

each other providing a holistic view

of the threat prior to an alarm

FY 2007-2008 FY 2009-2010 FY 2010-2012

IntegrationSensor Fusion/

Interoperability

Source: Frost & Sullivan

8

Challenges

Airport Screening Market: TSA Budget Breakdown (U.S.), FY 2008

52.4%

3.6% 18.6%2.9%

4.5%

5.0%

1.5%

11.6%

EDS/ETD Checkpoint

Air Cargo Training

Screener Compensation Privatized Screening Airports

HR Services Aviation Direction and Enforcement

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

Sp

en

din

g (

$ M

illio

n)

Air Cargo 55.0 73.0 122.8 221.0 265.2 278.5

Checkpoint 173.4 250.0 200.0 200.0 200.0 200.0

EDS/ETD 524.4 583.0 621.1 646.6 668.6 685.3

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 20120.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

Sp

en

din

g (

$ M

illio

n)

Budget 997.3 1129.8 1141.2 1257.0 1319.4 1353.1

Spending 453.6 408.0 425.2 478.1 506.3 542.5

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Airport Screening Market: TSA Budget vs. Spending (U.S.), FY 2007-2012Airport Screening Market: TSA Screening Budget (U.S.), FY 2007-2012

Screening Budget

Note: All figures are rounded. Source: Frost & Sullivan

Note: All figures are rounded. Source: Frost & Sullivan

Note: All figures are rounded. Source: Frost & Sullivan

9

Challenges - TSA’s Layers of Security

• TSA’s “Layers of Security” concept

has provided opportunities for

multiple technologies – there is no

silver bullet

• However, this approach has also

limited real growth because it is

human heavy

Intelligence

Customs and Border Protection

Joint Terrorism task Force

No Fly List and Passenger Screening

Crew Vetting

VIPR

Canines

Behavior Detection Officers

Travel Document Checker

Checkpoint/TSOs

Checked Baggage

Transportation Security Inspectors

Random Employee Screening

Bomb Appraisal Officers

Federal Air Marshal Service

Federal Flight Deck Officers

Trained Flight Crew

Law Enforcement Officers

Hardened Cockpit Doors

Passengers

Terrorist Paths

Source: TSA

10

Challenges - TSA’s Air Cargo Efforts

• There is currently no focus on

the deployment of technology for

screening air cargo, according to

TSA

• Without the support from TSA

technology deployment is

unlikely to happen by the 2010

deadline

Source: TSA

11

Challenges - The Future of Air Cargo

• The near-term focus is going to

be on deploying more

inspectors and canine teams

• Without a clear plan on what

technology to employ and more

importantly how to employ it,

the likelihood of a technology

based solution for air cargo is

unlikely

12

TSA’s Technology Deployment Plans

13

Technology and Solution Roadmap

2007 2008 2009 2010 2011 2012

X-Ray

Trace Portal

Backscatter

Passive Millimeter Wave/Terahertz Imaging

Computed Tomography (CT)

Active Millimeter Wave

Metal Detection

Advanced Technology (AT) X-ray

Checked

Baggage

Checkpoint

Security

Air Cargo

AT X-Ray

Trace Detection

X-Ray

AT X-Ray

CT

Sensor Fusion and Interoperability

Trace Detection

Canine/Authorized Shipper

Tech TrendSource: Frost & Sullivan

14

Competitive Environment

GE Homeland

Protection

52.7%

L-3 Security

and Detection

22.9%

Other

3.8%

Smiths

Detection

9.7%

Reveal

Imaging

8.8%

Rapiscan

2.2%

Airport Screening Markets: Market Share (U.S.), 2007

15

Market Attractiveness GridR

even

ue

Att

racti

ven

ess

High

Low

Significant Barriers

Open

Market

Market Openness

Most Attractive Markets

Most Attractive

Attractive

Least Attractive

20122012

20122012

Carry-On Screening

Carry-On Screening

Checked Baggage

Checked Baggage

20122012

Implementation Decisions

in favor of Screening

Technology

Air Cargo Security??

Air Cargo Security??

Decision postponement

or a non-tech solution

such as Canine teams Passenger Screening

Passenger Screening

20122012

20122012

Source: Frost & Sullivan

16

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17

Aerospace & Defense Market Coverage

C4ISR

Unmanned Systems

Homeland Security

Commercial Aerospace

Training and Simulation

18

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