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Face the facts with Michael Strianese

The CEO of L-3 Communications has every reason to celebrate at Le Bourget – the systems integrator won the hard-fought battle to get the C-27J Spartan selected as the US Joint Cargo Aircraft. He tells Graham Warwick about L-3’s latest activities

Q What does it mean to L-3 to lead the winning US Joint Cargo Aircraft team?
 JCA is a landmark win for L-3. It is recognition of our capability as a systems integrator and the first time I can think of when an aircraft contract has been awarded to a non-platform company.
The specific expertise in our Integrated Systems business – missionisation, modernisation, maintenance and logistics services – has become important. Alenia and Finmeccanica have been very strong partners to work with, and JCA shows that transatlantic procurement is alive and well.

Q How important to L-3 is winning business on this side of the Atlantic?
Another important milestone this year for L-3 was the award of the Helix programme to provide ISR aircraft to the UK Ministry of Defence. This validates our strategy of the past two years and shows we have the right international business model.
We have established a liaison office in London, purchased two UK companies and teamed with quality companies in the UK, Qinetiq and Logica, to keep a significant portion of the work in the UK. We competed against large players and won a landmark programme.

Q L-3 has grown rapidly through acquisitions. Will that continue?
Our acquisitions have slowed down, from 16 companies in 2006 to two so far this year. I have raised the hurdles for companies we are willing to purchase. I want them to be accretive to our growth rate and margin. We will acquire companies to add a technology or complete a capability, and we still seek out companies that are a good fit.
Meanwhile we have three companies in various stages of selling. They are good companies but not core to our goals and we will continue shaping our portfolio.

Q How will Wall Street react if your growth rate slows?
For a $13 billion company, maintaining a 20% growth rate through acquisitions would mean buying $2.5bn in companies and we cannot physically do that. A more manageable number is about 5%.
 Meanwhile we have a tremendous cash-flow, $1bn this year, that we can use to increase dividends and repurchase shares. Growing the top line is not the only story, and Wall Street understands that.

Q Are you making progress in creating a more integrated L-3?
The process will take several years, but we have created a new one-company look for L-3 that we have here at Paris. Our focus internally is on improving operations.
For example, we realigned our operations in Canada so they report to the business areas and it immediately began driving synergies such as collaborative R&D. In the electro-optical/infrared sector we have seven or eight divisions that can share resources and yield better margins, but we need to do it gradually so as not to disturb the operations.

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