Airport Security Equipment Presents Strong Potential Opportunities for Investors

PALO ALTO, Calif. - The events of September 11, 2001 marked a turning point in the world aviation industry. Reacting to the urgent need for enhanced airport security, the U.S. Federal Government formed the Transportation Security Administration (TSA), which, in turn, gave rise to the promising and fast-growing airport security equipment industry.

"TSA's intense focus on airport security has created an unprecedented demand for equipment to safeguard airports from potential threats," notes Frost & Sullivan Financial Research Analyst Rani Cleetez. "With government expenditure for this purpose exceeding an estimated $12 billion at the nation's 429 commercial airports since 9/11, this can only spell good news for airport security equipment companies."

Cleetez points out the three main reasons why investment in the North American airport security equipment industry is crucial. Firstly, the top line growth will continue, creating both entry and exit opportunities. Secondly, security awareness is spreading to smaller and regional airports and lastly, ongoing security breaches will keep a focus on improved technology and an increased sense of budget priority.

New analysis from Frost & Sullivan ( ),North American Airport Security Equipment Industry - Investment Analysis and Growth Opportunities, reveals that the industry (top 30 participants) earned revenues of $2616 million in 2004 and is likely to reach $6120 million in2009.

Expenditure on aviation security has increased to such an extent that TSA is expected to allocate 81.3 percent of its budget for this purpose in FY 2005and has already requested $4.98 billion from the Federal Government for FY2006.

Global market potential for aviation services will reach a staggering$69 billion by 2005 and around 75 percent of that is represented by airport security equipment alone. North America and Europe will account for the bulk of this at 40 percent and 35 percent, respectively.

"In essence, companies targeting these top two regions are likely to cover around 75 percent of the worldwide demand for aviation services," observes Cleetez. "This reveals tremendous potential opportunities for those interested in investing in airport security equipment companies."

Since this is a highly technology-driven industry, companies that continuously invest substantial amounts in research and development (R&D) are more likely to succeed than others. Technological innovation in this competitive industry is critical and companies must either constantly develop new products or upgrade existing ones.

Frost & Sullivan's study of 26 listed airport security companies reveals that the larger companies have reported much higher R&D spending than their smaller competitors. In fact, the top ten companies in the industry account for an estimated 65.5 percent of total R&D expenditure.

Since TSA considers high R&D investments an important criterion for granting certification to companies, this poses a considerable challenge to the market participants, especially the smaller ones.

"In such a scenario, the real challenge that lies ahead for airport security equipment manufacturers is their ability to cut costs efficiently, while keeping abreast of the latest technologies that warrant higher investments in R&D," remarks Cleetez.