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Is Private Industry a TSA Scapegoat

AN ARTICLE about the lack of progress the U.S. Transportation Security Administration (TSA) has made in airport security, which ran earlier this year in The Washington Post, pointed out that little had changed in terms of the sophistication of the screening technology at airport checkpoints since 9-11.

The article quoted TSA Administrator Kip Hawley as stating that the lack of new technology actually has more to do with how private industry works than anything else. He said, “the real story here is that the capital markets do not value the security industry.”

Specifically, the article pointed to the limited market for airport screening technology, given that there are only several hundred airports in the United States that might buy this type of equipment.

Is that a reasonable assessment or an effort to unfairly apportion blame?

“I wouldn’t scapegoat the private sector as not supporting and financing these things. I would scapegoat the government bureaucracy that has moved so slowly and has done little to really encourage and develop the technology,” says Jack Mallon, managing director of New York-based Mallon Associates investment bank, who focuses on the security and defense industries.

TSA is “trying to pass the buck in terms of why things aren’t improving,” agrees David Fishering, who covers the U.S. airport security market for Frost & Sullivan. The agency is getting increased scrutiny, so its response is “Well, it’s the private sector not producing enough good quality things,” says Fishering.

But isn’t the market small? That’s possibly true if you only look at the United States when you view the market, says Friso Buker, who covers airport security outside of North America for Frost & Sullivan. However, many companies that develop screening and other airport security technologies have a more international outlook.

“There are other markets out there, and those other markets, when you add them up, add up to a big chunk of change,” Buker says.

Not only are there other markets to sell to, there are other countries with companies developing new technology in the field. “Break out of the United States into other relatively developed countries, such as China, they do have a technological base. You will find innovation, you will find investment,” says Buker. One example is the Chinese company Nuctech, which has developed a liquid scanner designed to determine whether liquids contain explosives or other chemicals.

In any case, says Fishering, “TSA is really slow to implement technology that is out there.”

But that’s not to say the agency isn’t making progress. For its part, the TSA spent $370.7 million on baggage explosives detection systems in 2007, up 30 percent from 2006, according to Fishering. Additionally, he says, TSA is currently running two major tests: one for trace detection of liquids and one for advanced explosives detection of carryon items.

Overall, it does make sense that a technology with a limited use would receive fewer dollars than a technology that could be used by several industries, says Fishering. It’s just practicality. But dual uses do sometimes arise that help the industry advance. That’s how various companies got into the security field.

One such example is OSI Systems, Inc., which adapted its medical imaging technology to x-ray luggage and spun off the division Rapiscan Systems, says Fishering. That may also be why biometrics technologies have had more luck attracting sufficient private venture capital.

Fishering also says that it is likely that new technologies in the homeland security market will develop more rapidly now because the industry is reaching its third generation. The first generation was right after 9-11, when a lot of money was spent on quickly getting technology out there and finding technology that was already available and could be used for security. The second generation entailed refining existing tools, and generation three is described as technology that is being designed for a specific homeland security purpose.

One company attempting to gain ground in both the homeland security and commercial security markets is Noblepeak Vision Corporation, which recently won the grand prize at Global Security

Challenge 2007, a competition to find promising security start-ups.

The image sensor company’s vice president of marketing, Phil Davies, says that one of the most challenging aspects of breaking into the security industry is that it is fairly conservative. “It doesn’t move very fast, doesn’t like to change technology a lot unless it’s fully proven.”