Star Wars, Inc.

Whether it's ever even deployed, the space shield is already a $19-billion growth industry
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THOMAS JEFFERSON ENGINEERED the Louisiana Purchase. Teddy Roosevelt cut the Panama Canal. For John Kennedy, it was the space program. Now Ronald Reagan has his eye on an epic-size legacy of his own, the Strategic Defense Initiative (SDI), better known as Star Wars.

By any name it is an undertaking of breathtaking ambition. The professed goal is nothing less than lifting, for all time, the ominous nuclear cloud that darkens the planet by rendering intercontinental ballistic missiles impotent and obsolete. As a scientific and technological challenge, it is mind-boggling. Its potential price tag -- $1 trillion for full deployment -- dwarfs every other military project in the country's history. And for sheer political drama, diplomatic intrigue, and the lure of corporate profits, it has all the makings of a Robert Ludlum thriller.

It remains to be seen, of course, if Star Wars is a visionary alternative to the strategic doctrine of mutually assured destruction -- aptly known as MAD -- or just a Buck Rogers boondoggle that threatens to trigger a new round in the arms race. In the minds and hearts of the SDI faithful, however, there burns an almost religious faith. Damn the costs, blow past the obstacles, full speed ahead. This is the Good Guys against the Evil Empire for all the marbles.

Against this richly textured backdrop, U.S. businesses have swarmed to the crusade. Regardless of the wisdom or the feasibility of the program, they see in its anticipated $19-billion, five-year research budget a once-in-a-generation opportunity. For whether it is deployed or not, Star Wars promises to push back the frontiers of science and technology in ways reminiscent of the Manhattan Project and the race to the moon. Companies that get in on the ground floor can look forward not only to years of lucrative government contracts, but also to the potential of huge profits from commercialization of technology developed at government expense.

It is a safe bet that the lion's share of the SDI budget will find its way to such large and familiar corporate contractors as Lockheed, Rockwell International, and General Dynamics. National laboratories, such as the Energy Department's Lawrence Livermore, Sandia, and Los Alamos facilities, and the Defense Department's Lincoln and Applied Physics Laboratories, have also landed big contracts. Prominent universities, too, have jumped into the fray.

But maneuvering around the feet of corporate and academic giants are hundreds of smaller companies, some of which have sprung up simply to participate in the Star Wars sweepstakes. A couple of hundred firms have already slipped in under federal set-asides like the Small Business Innovation Research program. Scores more are teamed with big contractors, providing engineering and computer support. And still others are slugging it out on their own for prestigious prime contracts in some of the program's most pivotal and exciting areas.

"You have to be careful that the hogs don't trample the piglets on the way to the trough," quips one business observer about the competition. It is a concern SDI's managers have anticipated. By setting up an Innovative Science and Technology Office (ISTO), these managers hoped to make it easier for smaller and technologically adventurous companies to get a foothold in the program. And when research is completed, the Pentagon anticipates that a concerted effort by ISTO and others will have steered as much as 10% of Star Wars dollars to small businesses.

"The far-out, creative thinking is done primarily within academe and the small-business community," says James A. Ionson, ISTO's director, "so those are our prime players." Indeed, there is about his operation an entrepreneurial feel. A 36-year-old physicist formerly with the space program, the vivacious Ionson, in shirt-sleeves and civilian bearing, looks and talks like anything but a Defense Department contract officer. His temporary quarters in a scruffy old office building in downtown Washington suggest at least a symbolic distance from the Pentagon's hidebound bureaucracy. And perhaps most important, Ionson thinks of himself as a "venture capitalist who happens to work for the government," with $125 million to invest this year in cutting-edge research with high potential payoff to the Star Wars program.

That is peanuts, of course, compared with what other SDI program directors spend researching such things as satellite sensors and beam weapons. But in the shoestring world of scientific research, it was serious enough money to attract more than 3,000 proposals last year alone. Only one in 6 was funded, and budget cuts by a skeptical Congress will probably trim the odds this year to 1 in 10.

Geltech Inc., in Alachua, Fla., a company built around a new technology for making glass, is perhaps typical of the small firms working on Star Wars under Ionson's aegis. Rather than melting sand in the traditional method, Geltech has found a way to mix silica-based solutions that harden into a glass that the company claims is purer and stronger and more easily fashioned into large pieces than anything previously attainable.

What does that have to do with Star Wars? Plenty, it turns out.

"Nobody really knows how to make large glass structures quickly and economically with conventional methods," explains Dennis LeSage, a former General Electric Co. engineer who manages Geltech's 14-person operation. "Look at Mount Palomar -- it took years to manufacture that mirror. SDI will need many large, lightweight mirrors to bounce directed energy beams at missiles. And we're hoping to take part in that. The beauty of our process is that we can cast glass to fit any mold you like. That makes it quite cheap."

Cheap by Defense Department standards, anyway. Ionson learned of the new technology from Larry Hench, a professor at the University of Florida who pioneered the research. Hench, along with LeSage and other associates, formed Geltech largely on the strength of Ionson's interest. A $1.6-million, 16-month contract was negotiated to take Hench's work from the laboratory-curiosity stage into full-scale research and development.

"If it hadn't been for the SDI contract, we wouldn't have got going when we did," explains LeSage. "That gave us an added impetus and some credibility with the university and investors. It allowed us to bring the whole package together." As part of the deal, Geltech paid the University of Florida $380,000 for the right to license its 12 patent applications. And although Geltech plans eventually to take its product to the nonmilitary marketplace, the Pentagon is sufficiently impressed that it classified the process a "critical technology," which seals the patents from public disclosure.

Like many of the firms working for Ionson's shop, Geltech is not yet profitable. LeSage estimates that the SDI contract will cover only half the cost of building a pilot plant, characterizing the properties of the glass, and certifying its reliability. "We didn't ask for any profits," he says. "We were mainly looking for support."

The Energy/Environmental Research Group (EERG), based in Melbourne, Fla., is, like Geltech, another small company with academic roots that looks to the excitement and funding of SDI to create a successful new commercial technology. EERG was launched in 1980 in Tucson by University of Arizona astronomy professors John Scott, Eric Craine, and a third colleague as a vehicle for consulting work that could supplement their modest academic salaries. Now, seven years later, it has blossomed into a promising subsidiary of a publicly held corporation on the verge of an important breakthrough in electronic photography.

In traditional photography, light is collected on film by chemical means. Electronic photography, on the other hand, converts images into electronic impulses that can be quickly stored, analyzed, and transmitted by computers. These electronic impulses are gathered by thousands of tiny picture elements known as pixels, which are placed on small integrated circuit chips used in most of today's compact video cameras. The quality of the pictures has always been compromised by the borders around the chips, which detract from the sharpness of the image. It was Craine and Scott who discovered a way to "fool" the chips into thinking that they are gapless -- that the borders don't exist. The technique involves optically overlaying the chips with geometrically exacting prisms, producing an image of exquisite clarity. They patented it in 1985 under the name of Rimstar.

As it turned out, Rimstar was of particular interest to Ionson and his colleagues at SDI. One of the problems facing Star Wars engineers is that the satellite sensors that look down on the Soviet Union are not fool-proof. Because of the borders, their images are imprecise. And because the sensors, which have limited peripheral vision, have to scan in order to keep watch on a wide area, it is possible that they might miss the beginning of a missile attack. Rimstar offered the possibility of a fixed infrared "eyeball" that could stare down at large areas with near-perfect vision.

Scott was gung ho for pursuing the SDI opportunity. His partner Craine, disliking government work and preferring a more academic environment, was less interested. Their split was made easy by having in hand an SDI contract and an attractive buyout offer from a veteran defense contractor, DBA Systems Inc., in Melbourne, Fla. For an undisclosed amount, DBA bought EERG and the Rimstar technology, and took over the SDI contract.

While Craine remained in Arizona with his own new firm, Scott and some of his colleagues moved to Melbourne and dug into their SDI work. Their $4.5-million contract with Ionson will occupy them for three years and take Rimstar into uncharted territory. Should they succeed in designing an infrared optical electronic sensor capable of withstanding the rigors of space travel and attack from Russian missiles, EERG may be in line for other, much larger contracts for the actual development and deployment of SDI's early-warning and missile-tracking system. These would be the front-line components on which the entire Star Wars program will depend.

SDI won't be EERG's only customer, however, if things go well. Scott envisions that versions of his infrared camera could be used in dozens of other military applications, from helicopters to tanks to TV-guided missiles. They might also be used on commercial and military airplanes, or even light private aircraft, for better navigation at night or in bad weather.

But all that is still many years -- and millions of dollars -- into the future. Is Scott worried that Star Wars might disappear before research is completed and all the bugs are worked out? "Of course," he says. "We don't have this system yet. We're counting on SDI."

By defense-contractor standards, Sparta Inc., with 335 employees and sales last year of $32 million, is a very small player. But in Huntsville, Ala., home of the Army's Strategic Defense Command and a hotbed of missile work, Sparta has long been respected by its bigger and smaller neighbors. Known for its sophisticated computer modeling, Sparta headed the Army's effort to identify the best basing mode for the MX and the Midgetman missile systems. And in the process, it grew fast enough and steady enough to win a berth last year on the INC. 500 list of the fastest-growing privately held companies.

Sparta's previous defense projects, however, are small potatoes compared with what it is working on today. For this relatively tiny company is now locked in a high-stakes showdown to become the principal designer of the entire SDI system. What an architect is to a building, the designer would be to SDI, providing the blueprint by which others will do the brick-and-mortar work of manufacturing and assembling the components of the system. The prestige of the architecture contract alone would make it a worthy prize for any self-respecting technology company, but prestige is not its only benefit. Industry analysts say the architecture contract could yield from $20 million to $50 million a year once it is awarded by the Pentagon during the next three years. And even after full deployment, the architect is likely to have plenty of work just incorporating new technologies designed to blunt Soviet counter-measures.

As one of five finalists for the contract, Sparta has already knocked out some of the biggest names in the defense world, among them McDonnel-Douglas, Lockheed, and Hughes Aircraft. The competition ahead is nothing to sniff at, either: on the final stretch, Sparta finds itself up against TRW, Rockwell, Martin Marietta, and Science Applications International, of La Jolla, Calif., fresh from a victory of another sort as one of the designers of Stars and Stripes, winner of the America's Cup.

But don't feel too sorry for little old Sparta. As would-be architect, it has teamed itself with a formidable Huntsville neighbor, Nichols Research Corp., a specialist in optical analysis with 430 employees and $27 million in sales; and W. J. Schafer Associates, in Arlington, Va., a $16-million company that has already won small SDI contracts for its expertise with lasers. The team also has major-league experience in the world of big business and big defense projects. Orchestrating the effort is Sparta's vice-president, Robert Kinney, who spent 14 years in missile work at Douglas Aircraft Co. before leaving to become deputy director of the defense program for American ICBMs. Robert Sepucha, who is spearheading Schafer's role, once ran a $250-million-a-year directed-energy program for the Defense Advanced Research Projects Agency, a supersecret outfit that laid much of the groundwork for SDI.

"We felt there was a niche for a team like us," Sepucha says in explaining the decision to enter the risky and expensive competition with the giants of defense. "Many of us were involved in different parts of SDI-type work well before SDI was an entity. We understand the technical issues, we have government backgrounds, and because we are all small, we're unencumbered by the bureaucracies that may exist in large corporations. When you are starting with very little guidance [from the Defense Department], or guidance that is changing at a rapid pace -- as we were -- that is to your advantage. We're very good at broken-field running."

The Sparta plan envisions a three-layered line of defense against missile attacks. First, SDI rockets launched from space would try to knock out Soviet missiles during their first five minutes of flight, before the warheads are released from their booster rockets. In midcourse, the system would fire other missiles and magnetically powered "smart projectiles" during the 20-minute orbital phase. Should any of the incoming warheads survive those two lines of defense, a terminal defense would aim fast-burning rockets from ground stations at the warheads as they plunged toward targets in the United States.

There is nothing new about the concept of rockets taking out rockets -- that's what the Anti-Ballistic Missile Treaty (ABM) signed in 1972 was all about. But in reaching to protect every possible civilian and military target from thousands of warheads and decoys traveling at supersonic speeds, Sparta's SDI blueprint represents a giant leap of technology, if not of faith. Beam weapons may have the potential for higher accuracy and handling a larger number of incoming warheads, but even Kinney admits they won't be ready to deploy for at least 25 years.

Although all the architecture finalists are working on SDI plans that resemble each other in their broad outlines, it is on the basis of the details -- how the components will be manufactured, deployed, and coordinated -- that the submissions will be judged. Working through those details is a task of awesome complexity. Thousands of components must be looked at, and hundreds of contractors and manufacturers across the SDI spectrum must be contacted regularly in order to analyze and integrate the converging technologies. The latest intelligence about Soviet missiles and SDI countermeasures must be considered and incorporated into systems and strategies. And to analyze the effectiveness of basic designs in real-world confrontations, Sparta invests $2 million of its own funds annually in computerized modeling and simulation instruments.

Is Sparta fearful of being outgunned by billion-dollar behemoths with tens of thousands of employees, plenty of money, and powerful allies in the bureaucracy and in Congress? Not quite. "I like to think they are outgunned when they are up against us," Kinney says gamely. His optimistic view is seconded by none other than Army General Malcolm O'Neill, deputy of systems and programs for SDI. "The architecture work doesn't require the wealth and the power of a giant corporation," he says. "It's kind of like the Marine Corps. All it takes is a few good men."

Good men -- and women -- haven't been hard to find. At Sparta, stock options and annual bonuses of as much as $10,000 surely help with the recruiting. But to Kinney it is clear that the psychic rewards are equally important. "This is such exciting work, at the forefront of technology, that it is easy to attract talent," he says.

What is striking is how young the talent is. The signing of the ABM treaty sent most experts in antimissile defense on to other specialties during the 1970s, and it is only now, with the prospect of work on such frontier areas as directed-energy weapons and space-based computers, that scientists once again are choosing to make a career in the field. "There is clearly a link between the newness of the technologies and the average age of the people," says Sepucha, who at 43 is something of an SDI elder.

In the end, of course, this generation of antimissile scientists and entrepreneurs may also be disappointed. With growing opposition from politicians of both parties, SDI could die from budgetary starvation or be bargained away by the next Administration even before an architecture contract is ever awarded. Alternatively, the Pentagon may decide, as has been recently rumored, to design the space shield itself, through a special institute established just for that purpose.

Down in Huntsville, however, Sparta and its partners are betting the farm on the prospect that serious work on some form of antimissile system is in the future -- their country's and their company's. And in competing for their share of the SDI prize against some of the biggest and best defense contractors, their calculation is that, as small companies, they are the only team that wants the architecture business badly enough to pursue the competition to its completion. Companies like Rockwell or TRW may profess an abiding interest in $20-million studies, but they don't make much money on them. What really holds the interest of the big players -- and what may have drawn them to the design competition in the first place -- is the possibility of gaining an inside track on the billions of dollars in production contracts that will begin to flow once Star Wars moves from the drawing board to production. In defense work as in building, architecture is nice, but the real money is in construction.

To be fair about it, it's not just that Sparta and its partners want the SDI architecture contract more than their competitors -- they also need it more. Last year, SDI work for Sparta totaled $24 million, or about three-quarters of the company's total revenue. Nichols Research figures that 86% of its income flows from SDI. At W. J. Schafer, the figure is closer to 50%. "If SDI went away," concedes Kinney, "it obviously would have a significant impact on our companies."

With so much staked on one program and one contract, there has been some understandable hedging of bets. From some of its initial design work for SDI, for example, Sparta has repackaged a product it calls "defense in-depth simulation" that uses computer models to analyze the efficacy of all manner of weapons, sensors, and command and control equipment for both nuclear and conventional warfare. Already it has sold the package to nine aerospace companies, including some of its competitors for the architecture contract.

A similar strategy is contemplated by another small company playing a highly visible role in the development of SDI, System Planning Corp., located a mile down the highway from the Pentagon, in Rosslyn, Va. Even as companies such as Sparta churn out preliminary designs for Star Wars, SPC is trying to punch holes in them. In 1984, the company won its biggest contract ever -- $32 million over five years -- to study Soviet countermeasures to SDI; in effect, to play the Russians. The idea is to prevent SDI from becoming a Maginot Line in outer space.

Like Sparta, SPC is not new to defense work. The firm did $50 million in sales last year, almost all of it for the military. And like Sparta, its executives have longstanding ties to the Pentagon. SPC's project for Star Wars is headed up by vice-president Jack Kalish, an electrical engineer whose experience with antimissile work dates to Project Defender in the 1960s. Later, Kalish served as deputy director of the Army's ballistic missile defense program, a forerunner of SDI.

Kalish has assembled a team of 25 scientists and strategists whose job is to ask what a reasonable Russian would do about SDI, and to help figure out how such Russian countermeasures might be overcome. The SPC team competes regularly in sophisticated war games with SDI officials and contractors. They also sort through political and diplomatic scenarios that may ultimately affect the timing and deployment of SDI. And they tap into the intelligence community for seemingly mundane information about the Soviet Union to determine the probability of various Soviet responses (knowing how many physicists are enrolled in Soviet universities, for example, might indicate if the Russians have the capacity to build laser systems powerful enough to blind the Star Wars sensors).

But just as Kalish plots a strategy for the survival of SDI, his company is plotting its own survival strategy in case Star Wars "goes away." Should it happen, Kalish would try to convince the Pentagon that every new weapons systems should be subject to the kind of what-if review that Star Wars is now undergoing. "Any project that can afford it ought to opt for the services I offer," he explains. "Whether it is SDI or a Navy missile program or some new weaponry -- they can all profit from antagonistic scrutiny of countermeasures." So far, however, Kalish has no other customers.

Kalish, Kinney, Scott, and the others all recognize the perils facing their companies should Star Wars turn to stardust. But for a small company hoping to participate in any meaningful way in the biggest research-and-development project of a generation, there really isn't much of a choice. Pushing back frontiers is not the work of the financially timid or the politically faint-hearted. But those who succeed may dominate the increasingly high-tech world of defense contracting for decades to come.

Last updated: Apr 1, 1987




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