STRATEGY

Case Study: Spy in the Sky

Having leased blimps to clients like Fuji Film, a company considers a whole new market: homeland security.
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Case Study

George Spyrou knows the seductive danger of high expectations. In the 1990s he expanded his blimp company, Airship Management Services Inc., too fast. "Our marketing department had all these fancy charts that anticipated a lot of demand. But that didn't happen," he says.

Spyrou is drawn again to rapid expansion, in an unproven market no less -- the homeland-security field. If he can persuade the government to deploy blimps over harbors, Spyrou thinks he could double or triple annual revenue, from $3 million in 2002 to between $5 million and $10 million this year. But the prospect is daunting for Airship, which is based in Greenwich, Conn., and manufactures blimps in Elizabeth City, N.C. "God, it would change us," Spyrou says. "It's scary."

Ironically, Spyrou's interest in government contracts came to a head after September 11, when the feds actually moved to prevent blimps and similar aircraft from flying within 30 miles of any major city. The loss of ball-game flyovers for clients like Fuji Film "could have been fatal" for Airship, says Spyrou, who teamed up with fellow blimp operator Goodyear to win a reprieve.

While tangling with the feds, Spyrou began thinking about selling his blimps to the very defense and law-enforcement agencies that were giving him a hard time. As an aerial-surveillance platform, there's nothing better than a blimp, he thought. They're low, slow, and have a large workspace in the gondola for equipment and people. And, in a real plus for long missions, there's a bathroom onboard.

The technology most competitive with blimps is spy satellites, which Spyrou reports are much more expensive to build and operate. Plus, satellites can't carry people, so they can't serve as a command post in the way a blimp can. And Airship already has a solid footing in law enforcement, having worked with security staff at both the Atlanta and Los Angeles Olympics and at the 1994 World Cup in the United States.

But despite this history, selling to the government is never easy, and Airship faces more obstacles than most potential federal vendors. Could Airship even handle a big government order? The company has 80 employees engaged in everything from building the gondolas to piloting the ships, and four $5 million blimps in inventory. "If the Coast Guard is interested, they're not going to order just one," Spyrou says. "We'd have to radically gear up."

That will take money. According to Airship spokesman William G. Armstrong, the company would probably borrow against any contract it signed or, less likely, build on spec and seek outside financing. But in that case, Airship would have to order parts from subcontractors -- before a deal was signed -- as it ramped up production. "We don't want to end up with a hangar full of airship bits," Spyrou says. One solution: simplifying the manufacturing process by using more off-the-shelf aircraft components.

The government's purchasing bureaucracy is another element Spyrou must consider. With the creation of the Department of Homeland Security last November, he is hopeful that there will be one-stop shopping for him in D.C., "rather than dealing with each port individually," he says. But this assumes that someone on Uncle Sam's payroll will decide to buy a bunch of blimps. Even folks at Airship admit to two key problems with the blimps-for-security pitch: the giggle factor and the Hindenburg factor.

First, the giggle factor. People often think of blimps like their favorite sports team's mascot -- they're at every game, they're funny, and they're totally useless. Next, the Hindenburg factor: Remember the 1930s zeppelin going down in a fiery wreck? "People still think the damn thing is going to blow up and kill everyone," Spyrou grumbles. (For the record, the Hindenburg was filled with highly combustible hydrogen, while Airship uses helium, which is inert.) Although fiery death seems to be a thing of the past in this industry, Spyrou's business could still crash and burn if he moves too quickly to capture government dollars in an uncertain climate. "It could radically change the business," Spyrou says, adding, "I don't want to jinx it."

The Decision

Spyrou has his people pushing full steam ahead. Airship is looking into leasing a West Coast hangar facility to handle the anticipated increase in demand. It's also making its presence felt in the nation's capital. "We're feeling our way and developing relationships while we wait for the Homeland Security Department to become more evolved," he explains.

To that end, Spyrou has met with members of the House Transportation and Infrastructure Committee's Aviation Subcommittee to press the case that blimps should be seen "not as a security threat but as an asset." And during the Navy's Fleet Week in New York City in May, more than 40 U.S. Navy officers and representatives from various agencies participated in 21 patrols over the city. The company also sponsored a forum in November at the Potomac Institute for Policy Studies in Arlington, Va.

Spyrou has discussed hiring lobbyists with his staff and has talked to others in the industry about forming a trade association to push for collective interests in Washington. "We're still a very small company, so we just can't expect that things will happen for us," he says. One good sign: Airship has already garnered a favorable mention on Congressional Quarterly's in-the-know Homeland Security website, so the word is starting to get out.


The Experts Weigh In


Will Airship's security pitch fly?


Col. Ken Allard (U.S. Army, Ret.), President, CKA Consulting and MSNBC Military Analyst

Rating: 5 (with 10 being "absolutely yes")

In terms of homeland defense, blimps make perfect sense. You get long-duration, low-cost surveillance. They'd be particularly useful in securing what are still largely undefended borders, north and south. The problem is that the security gaps that need filling are an order of magnitude wider than the dollars available. I think Airship is expecting a pot of gold, and to this point, at least, the dollars haven't been there at either the federal or the state level. Remember, it's got to come out of somebody's budget. There's been a quantum jump in threats, but not a quantum jump in resources. They will have to get in line with everyone else and do all the traditional things -- do product demonstrations, get the attention of members of Congress, and the like. My experience as a consultant is that it is one thing for people to start mouthing the threat, but quite another to open pocketbooks.

Jeff Stein, editor of Congressional Quarterly's Homeland Security website

Rating: 7

I think it's a very reasonable gamble. The whole homeland-security effort seems to have a seat-of-the-pants feel -- and that's not all bad for companies like Airship. The traditional way to make your product known in Washington is to hire somebody with connections; for example, the public relations firm Fleishman-Hillard just hired retired Gen. Barry McCaffery, the former drug czar. What's he going to do for them? Open doors. Or the U.K.-based company the Autonomy Corporation -- it was totally unheard of but got an impressive data-mining software contract for homeland security. Who's on their board of directors? The chairman of the Department of Defense's Defense Policy Board, Richard Pearle. That's the way business is traditionally done in Washington, or anywhere, I guess: You've got to get inside and talk to the right guys. Right now we're looking at an $80 billion homeland- security operation, and that's big money by anyone's standards. I would also advise any company that's new to this that they'd better have up-to-date security clearances.

Eric Brothers, editor of Buoyant Flight, the bulletin of the Lighter-Than-Air Society, a blimp-enthusiast group

Rating: 8

The potential has always been there for surveillance, but since 9/11, the public interest has come around. There just aren't many companies out there building blimps. I know Airship had great success and positive feedback during Fleet Week this past summer, during which they carried FBI agents aloft. But it might be a stretch for them to double the number of flight-ready airships they have within the next year. They've been around a long time, however, and they seem to have the finances available and a proven product.


Please E-mail your comments to editors@inc.com.

Last updated: Mar 1, 2003




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