The market for aviation security detection equipment in the first half of 2022 has improved over the same period 2021 but a full recovery isn’t expected until 2024, says the chief executive of Leidos [LDOS].
“Bid volume and bid scale has increased meaningfully when compared to the first half of 2021,” Roger Krone, chairman and CEO of Leidos, said earlier this month during the company’s second quarter earnings call with analysts. Later in the call, he said Leidos is “seeing double-digit growth in that business year over year.”
“And we’re getting great feedback and our ability to differentiate our offerings by being bringing broader Leidos capabilities, like cyber protection,” he said
The second half of 2022 will be stronger than the first half “on profitability and margins” for security products, Chris Cage, the company’s chief financial officer, also said during the call. Growth in the security detection business will continue to accelerate in 2023 but won’t get back to pre-COVID levels during the year, Cage said.
In 2024, the security detection business will hit the pre-COVID level and then continue growing beyond that, driven by airports in the U.S. and globally modernizing their equipment due to age and the need to stop new threats, including the drug fentanyl, that previous machines couldn’t detect, Krone said.
There is also demand for a more “touchless” experience at the checkpoint so that passengers can just walk through, he said.
“And the technology is emerging where most airports 10 years from now will have a touchless experience for the passenger and we expect that to drive significant demand,” Krone said.
During the “trough” in airport security product demand, Leidos has been “investing heavily in technology so that we are ready to compete as the business comes back,” he said.
Krone highlighted Leidos’ recent win to provide a comprehensive suite of security products to upgrade and integrate the traveler checkpoints at the Dominican Republic’s Punta Cana International Airport. Leidos’ security detection business, whether it’s at airports, ports or borders, is global, he said.
“We’re about in every country that we feel is appropriate for us to sell and buy,” Krone said.
Where Will the Growth Be?
When it comes to airport security, it would seem that Leidos will have to leverage its international business for growth in the next couple of years. That’s because funding for checkpoint screening equipment for the U.S. Transportation Security Administration is essentially anemic.
TSA’s priority checkpoint screening program, which is the purchase of computed tomography (CT)-based scanners for carry-on bags, only received about $105 million in fiscal year 2022 and appears destined for about the same appropriation in FY ’23. House appropriators have already agreed to the FY ’23 request, $105.4 million, and Senate Appropriations’ Democrats in late July released their version of the FY ’23 Homeland Security funding bill, which funds the checkpoint CT request.
David Pekoske, who is currently the acting administrator of TSA until the Senate votes to confirm him for a second five-year term, has said the checkpoint CT program needs about $350 million annually to complete deployments within the next five years at about 2,400 security lanes. Otherwise, he has said, it will take until about 2036 for the CT installations to be finished.
Leidos is one of four companies competing to provide checkpoint CT systems to the TSA but so far, the agency has only acquired systems from two companies, Smiths Detection and Analogic. Smiths was the winner of the first contract for 300 systems but since then TSA has only tapped Analogic for checkpoint CT systems.
Pekoske recently said that TSA’s capital account is a key focus area for him given that major procurements are stretching out decade or longer. He also recently said that another checkpoint priority, biometric-enabled credential authentication technology (CAT), won’t be fully deployed at airports until the mid-2040s due to resource constraints. Leidos has capabilities in biometrics but hasn’t been a competitor for the CAT program.
Leidos is currently the only supplier of advanced imaging technology (AIT) at airport checkpoints in the U.S. and also sells its ProVision AIT systems globally. However, the agency currently doesn’t appear to be positioning to acquire new AIT systems but is looking into upgrades.