Moving Up The Supplier Chain David Smith, Vice President and General Manager EMS Technologies’ Defense and Space Systems

By , | September 27, 2007 | Feature

EMS Technologies Inc.’s Defense and Space Systems (D&SS) business unit accounts for more than $50 million of the company’s annual revenue. But EMS would like to see that number grow as military budgets continue to climb.

“We have a very aggressive growth mantra from our new CEO Paul Domorski,” David Smith, who was named vice president and general manager of D&SS in April, said. “If this company was to ever go through a change it’s now. We have well over $100 million in the bank. … The corporation is supporting my division with the transition from component to subsystem manufacturer. We’re investing in our supply chain and supply chain management. Based on the recent success stories we’ve had, we expect to seek out new opportunities for larger, longer-running contracts with greater volumes.”

Defense & Space systems provides systems for communications, surveillance and electronic countermeasures, and EMS sees opportunity to expand both its presence in the market and its role in major programs. “Our strategy [at EMS] has changed from component manufacturer to moving into more strategic contracts that are larger and have multi-year manufacturing periods with much higher volumes,” Smith said. COTM (communications on the move) are providing many opportunities to do that. For example, the Hawklink contract for fitting antenna onto military helicopters comes with a first contract that will be 500 units plus. This is something fairly new for EMS. We had large component contracts, but now we’re forcing ourselves up the food chain. We have the opportunity to build the antenna and the power control, the data path and the hardware as well. We’ll build smaller systems and sell them to customers. The more opportunity we have to do that, the more we prove ourselves.”

Smith spoke with Satellite Today News Editor Jessica Pearce and Via Satellite Editor Jason Bates about emerging technology, changing strategies and where EMS hopes to fit in a shrinking industry.

Satellite News: What is the future of military aviation and satellite communications, and what role will EMS have in that market?

Smith: There is a major move in aviation in general. We’ve been building communication systems for the F-22 fighter that provides a platform-to-platform communications system. Now people are making a lot of noise to create fighter satcom, and not just platform to platform but also uplink to a satellite so that particular geographical or tactical picture being painted can be sent via satellite to virtually anywhere in the world. There is a lot of movement in the military space to actually get tactical satcom on the fighter aircraft.

… This is netcentric warfare. It has been a buzzword for a very long time, but finally the military is quite serious about having everybody in the theater to communicate using the same system and everybody hearing and expecting data from everybody else.

Satellite News: How do you plan to expand your military role in other areas beyond satcom?

Smith: We are starting to get into the various terminals. We’re slow to get into that, mainly because we have teamed with people that lost that particular part of the competition, like FAB-T and WIN-T. We have learned lessons from that and changed our marketing and teaming strategy on TSAT. We are working with Boeing and Northrop Grumman, so whoever wins, we’re going to win.

Through Boeing, we are a first-tier supplier. The work is worth $220 million and could be as high as $380 million. Northrop Grumman does more of its work in house, so our share would be between $60 million and $100 million.

Satellite News: What are the growth prospects for your anti-jamming technology?

Smith: We expect anti-jamming for commercial satellites to become a standard thing, and EMS is a frontrunner, as we’ve done most of the military anti-jamming systems for many, many years. Most military satellites have EMS anti-jam systems on them.

The development of the commercial side will be dependent on current events — and if we drive the cost down enough. It’s probably less than two years away from this technology showing up on commercial satellites. … If there was to be event where commercial sat that was providing secure military communications was jammed, I’m sure the next satellite launched would have anti-jam on it.

Satellite News: What is the most difficult part of working on military contracts?

Smith: We find ourselves in the squeeze position. The major companies get the contract, but they give us the subcontract where we absorb much of the risk. If we send it out to other subcontractors, they only work under cost-plus contracts and won’t take a fixed price contract. If something of an unknown technical nature crops up that we have to fix, we lose money. This is why companies leave the space industrial base.

The space industry is very aggressive to push technology. A smaller base means smaller weight and less power. One of the discriminators we bring to the market is we can make those products. So in some cases, it’s hard for us to play in the industry, but in some cases, it helps us out, so it can be double-edged sword.

Satellite News: How hard is it to move up the military supplier ladder?

Smith: As we prove ourselves as a higher tier producer, we are beginning to have conversations for subsystem work where they will not go through a major contractor. It’s something we are trying to facilitate. Our marketing people are out beating the bushes to get face to face with the people at the agencies making those decisions, and I think we’re making headway. But in some cases with long legacy systems this is a difficult place to be.

Satellite News: Can you fix this system?

Smith: We’re trying to correct the methodology in which the majors pass work down to lower tier suppliers and try to get the government to have control and regulation so there is some continuity. Money from the Air Force on a space system flows down to fifth- and sixth-level suppliers. Governments have a say below the majors, but they don’t look there right now.

About 60 to 65 percent of hardware on military satellite comes from supply chain below the majors, so this is viable part of the satellite and something that needs to be closely scrutinized. Something needs to be done to lessen pressure on industrial base.

Our growth goes hand-in-hand with the government taking a close look at supplier base. They see shining stars like EMS and find companies they can go to directly and save money and still get the quality they desire.

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