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Spectrum Astro factory
Spectrum Astro’s “Factory of the Future” in Arizona is one of the major assets obtained by General Dynamics when it acquired the company earlier this month. (credit: Spectrum Astro)

General Dynamics buys Spectrum Astro: Good deal for whom?

General Dynamics was probably the only major aerospace firm that could have bought Spectrum Astro without setting off antitrust alarm bells, both in the Justice Department and at the Pentagon. The industry is over-consolidated enough as it is. Unlike some, General Dynamics is not known for making acquisitions just to get its name in the papers or to provide fat fees for bankers and lawyers. So the question arises: what are they up to?

They could be trying to build themselves a real space business. Since they sold off their space division years ago, they have made at least one small space oriented acquisition, but after bringing the unit up to speed and making it profitable, they sold it. Could they employ a similar strategy with Spectrum Astro?

The most important thing about Spectrum Astro is the company’s proven ability to innovate and to challenge the way things were done in the past.

To understand the real value of Spectrum Astro, it is important to look beyond the usual criteria. With 2003 sales of $134 million, they are not exactly a small player. Their new plant in Gilbert, Arizona, is the most advanced satellite manufacturing facility in the US and, probably, the world. They are a critical player in the Air Force’s Space Based Infrared/Space Tracking and Surveillance System (SBIRS/STSS). This project, or one just like it, will probably be the most expensive and important unclassified military space program in the last half of this decade, surpassing the Space Based Radar project, where the company could also play a major role.

The most important thing about Spectrum Astro is the company’s proven ability to innovate and to challenge the way things were done in the past. The US space industry is desperate for fresh concepts, and for leaders who can break the mold of the traditional system. The big contractor mentality has hurt the aerospace industry as a whole. Why should Boeing be in such trouble? Why can’t they build a new generation of spy satellites? Is it perhaps because they don’t want to?

Government procurement regulations and corporate bureaucracy have drained almost all the excitement out of designing and building new air and spacecraft. Where there remains some excitement and originality, such as with the Mars rovers, American industry can still hit home runs. But, when it take more than 30 years to try, and then fail, to bring something as simple as a light attack helicopter into service, then its time to recognize that something is seriously wrong. The questions for General Dynamics leaders are hard ones. Do you intend to make Spectrum Astro the heart of a new and innovative space systems division, which will revolutionize the industry and put the US back in the forefront of space technology? Do you have the combination of deep pockets, patience and guts to do this?

Few major corporate acquisitions are good for the stockholders or for the company. General Dynamics has had an enviable reputation for looking after the interests of its equity holders. They refused to go along with the industry consolidation advocated by Bill Clinton’s Secretary of Defense, Les Aspin, in 1993. Instead, they concentrated on maximizing return on investment, and on building their core competencies.

Spectrum Astro needs not only to be nurtured and given proper backing, it also needs to be allowed to maintain its own identity.

Recently, however, they began “conglomerating” again. They have been buying up European military vehicle manufacturers, such as the Swiss Mowag Company, whose Piranha wheeled armored personnel carrier is the basis for the Marine Corps’ LAV and the Army’s Stryker. GD has formed a European branch with subsidiaries in Austria, Spain and, if the deal with Alvis comes through, England and Sweden. The political complexities of this business unit will almost certainly take up more senior management time and effort than they probably realize. Will they have much “bandwidth” left over for space?

The great danger for a large company, such as GD, when it takes over a small “gem,” such as Spectrum Astro, is that either they try and fit it into their usual corporate culture, in which case they decrease the value of their acquisition, or they ignore it and underfund it. In either case, it would be a major waste.

Spectrum Astro needs not only to be nurtured and given proper backing, including comprehensive sales and government relations support, but it also needs to be allowed to make a few small strategic acquisitions of its own. It also needs to be allowed to maintain its own identity. This should not be a problem. GD has allowed its Gulfstream Corporate Jets division to keep its brand. Most important, it needs to maintain the high morale and the quality of its personnel. Nothing would strip the company of its value faster than a couple of rounds of layoffs.

General Dynamics have bought themselves an opportunity to become the leading innovator in US spacecraft development. With the right leadership and resources, they could succeed in revolutionizing the way the industry builds satellites and space probes. On the other hand, if they treat this as just another M&A deal, they will only be throwing away the millions of shareholder dollars they are paying for this company.

It should be interesting to watch.


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