It could become by far the Pentagon's most expensive investment in satellites, a massive undertaking that would require the leadership of a defense-industry behemoth -- or so one might think. While there's no firm support for a missile shield in Congress yet, one small and relatively unknown satellite company has emerged as the unlikely favorite to lead the construction should President Bush assemble the legislative backing he needs to proceed.
LUCRATIVE RIGHTS. Spectrum Astro, of Gilbert, Ariz., is leading one of two competing teams of aerospace contractors vying for the lucrative rights to build a constellation of between 18 and 34 low-earth orbit (LEO) satellites. Their mission would be to span the heavens, watching and waiting for a missile attack and then tracking enemy rockets as they soar through space. This would be the backbone of the missile-defense shield. Using data gathered by the satellites, U.S. rockets could blast off to intercept incoming warheads before they reach their targets.
At least that's the idea. Spectrum Astro's contribution would be only one component of a three-sided shield that includes ground support and other satellites deeper in space to act as the initial sentinels of the early warning system. Spectrum Astro is facing formidable competition from TRW Space & Electronics, of Redondo Beach, Calif., which wants to build the same shield components that the Arizona contractor aims to grab for itself. Still, Spectrum Astro already looks like a rising star for the increasingly important Pentagon project.
"This looks like it could be a huge defense program -- and it's remarkable that a company as small as Spectrum Astro is competing for these contracts," says Pete Skibitski, senior defense-industry analyst for DFI International in Washington.
NASA CONTRACTOR.Don't search for Spectrum Astro on the New York Stock Exchange or Nasdaq. The company is privately held. It has 300 employees working in the East Valley of Phoenix near Sky Harbor International Airport. The company is using proceeds from preliminary design contracts to build a massive satellite factory and research-and-development center on former soybean fields near its headquarters in Gilbert.
Since the company was formed 13 years ago, it has built and launched only five satellites, all for NASA. But the Pentagon is fond of Spectrum Astro's "better, faster, cheaper" approach, the motto it borrowed from NASA Director Dan Goldin, who -- despite the ballooning cost of the International Space Station -- has stressed the development of innovative techniques that deliver greater research returns for each dollar spent. Goldin also has shown a regard for smaller businesses that can prove their mettle against larger competitors.
The Pentagon is no doubt also leaning toward this approach, given the wave of consolidation that has transformed the defense and aerospace industries of late. Call it affirmative action for the little guy in a business where five or six massive companies dominate Pentagon procurement. This year alone, Northrop Grumman bought Litton Industries for $5 billion and General Dynamics announced plans to acquire Newport News Shipbuilding for $2.6 billion. That deal would put the construction of all U.S. aircraft carriers and nuclear submarines in the hands of a single company.
UNDERDOG FACTOR. Spectrum Astro provides competition, but there is also a David vs. Goliath factor assisting the company, says CEO David Thompson, a former R&D officer in the U.S. Air Force. "We've sort of become the leading underdog of the satellite guys. We're the company shaking things up," Thompson boasts. "Frankly, this industry has a history of poor performance and cost overruns. The Pentagon wants to change that."
Spectrum Astro is leading one of two design teams now vying to build the satellites known as SBIRS Low (space-based infrared system). The Pentagon chose Spectrum Astro and TRW as competing contractors over many of the biggest names in defense and aerospace, including Boeing and Lockheed Martin. Lockheed is the prime contractor for another, equally important component of the proposed missile shield called SBIRS High. It involves three or four satellites much deeper in space -- perhaps 20,000 miles from earth -- that would provide the earliest warning of a missile attack by using infrared sensors to spot the exhaust plume of an enemy rocket.
SBIRS Low would provide mid-course tracking and cue ground-based interceptor missiles, both before and after launch. On SBIRS Low, Boeing and Lockheed are now working for Spectrum Astro's team, which also includes Northrop Grumman.
BILLION-DOLLAR WINNER. TRW, meanwhile, has signed rocket and sensor manufacturer Raytheon as a partner, as well as Motorola, Aerojet, and Honeywell. The two teams have each been awarded $275 million for preliminary designs of SBIRS Low, with the Pentagon expected to choose a winner in late 2002. The victorious team would receive billions of dollars in construction and engineering contracts expected to last 10 years or longer.
"This competition is what you call a binomial distribution: One company will get 100% of the contracts and see huge growth, the other will no doubt have to scale back," says Scott Yeakel, SBIRS Low director for Spectrum Astro.
TRW sees it the same way, but feels it has an advantage given that its team has been working on satellite-defense concepts much longer than Spectrum Astro. "The strength, performance, and heritage of this team is what we'll carry forward to the next phase of SBIRS Low," says TRW Vice-President Pat Caruana. "Just because [Spectrum Astro] is small doesn't suggest they will come forward with the best offer. They've surrounded themselves with some of the biggest companies [Lockheed, Boeing, Grumman] in the business, which makes it a little difficult to see exactly what their position is. Next year, it will come down to which team has the best-value solution for the government. Whatever team brings that forward will win."
Spectrum Astro's Thompson says his company's success in being named a primary contractor for one of two design teams illustrates how his larger rivals have become "complacent." "Many of these companies began to believe their own press," he says. "They thought it would be a walk in the park. Nobody thought we'd be the prime contractor."
OPPOSITION ABOUNDS. Certainly, Congress needs to allocate funding for such a program before the winning team is given the job. Democrats are highly skeptical about whether a missile shield would be effective, or if one is needed at all. They also question the political ramifications of such a project. It would incite an outbreak of paranoia among Chinese and Russian leaders, they argue, and could reverse Moscow's gradual reduction of its nuclear arsenal.
Still, President Bush seems bent on a missile-defense shield -- especially after his gung-ho speech May 1 in which he stressed his commitment to jumpstarting the program, first introduced by the Reagan Administration in the mid-1980s. Today, the cost of such a program appears hardly out of whack with other Pentagon projects. If SBIRS Low were to come in at $11 billion over 10 years, that would be less than the cost of a dozen Stealth bombers, or three nuclear-powered aircraft carriers, each of which takes five years to build.
With all his talk about the prospects for the prestigious and lucrative contract for a missile-defense shield, one might assume Thompson has plans to take his company public sooner rather than later. But Thompson is taking a conservative approach to growth, saying he doesn't know when Spectrum Astro might make an initial public offering. He sees no reason to expand into commercial satellite construction, either. "We have fastidiously avoided taking on much debt. Our only customer is the government, which finances all its projects and pays for much of the R&D. What better deal could you ask for?"
A seal on that deal could come as soon as next year -- if authorization for President Bush's dream of a missile shield becomes a reality. By David Shook in New York