War Profiteer of the Month: L-3 Communications


L-3 has grown from a motley collection of businesses spun off from Lockheed Martin in 1997 to a $14 billion company that is one of the largest military contractors. It provides a wide range of high-tech electronics and communications services not only to the Pentagon but also to U.S. intelligence agencies. Not all its services are high-tech: the company’s MPRI subsidiary, acquired in 2000, is among the providers of controversial private security services in places such as Iraq. With its 2005 acquisition of Titan Corp., L-3 got into the business of providing translators to assist U.S. forces in war zones and was thus linked to the scandal concerning mistreatment of prisoners at the Abu Ghraib prison in Iraq, where translators employed by Titan were reported to have been involved in interrogations.


L-3’s origins were in a company called Loral Corp., which rose from obscurity beginning in the late 1980s with a string of acquisitions such as Goodyear Aerospace, Ford Aerospace, the missile business of LTV and the Federal Systems unit of IBM. Run by Bernard L. Schwartz, Loral was gobbling up military contracting businesses at a time when many companies were leaving the field, which was becoming increasingly controlled by a handful of huge players. In January 1996, the largest of those players, Lockheed Martin, made a bid worth more than $10 billion for most of Loral.

The following year, Frank Lanza, a Loral executive who became Lockheed’s head of defense electronics after the merger, persuaded Lockheed Chairman Augustine to spin off a group of ten communications technology businesses into a new company Lanza would head. That company took the name L-3 Communications, the L’s being a reference to Lanza, president Robert LaPenta and the investment bank Lehman Brothers, which was a major investor in the venture.

L-3, which went public in 1998, pursued a strategy similar to the one that had been employed by Loral—growth through the purchase of divisions being shed by major military contractors and struggling independents. Though these acquisitions were each of modest size, the volume of the deals helped L-3 grow rapidly.

Starting in 2002, L-3 became more ambitious. In January of that year it announced its first 10-figure deal—the $1.1 billion purchase of the Raytheon’s Aircraft Integration Systems business. Then, in June 2005, L-3 announced plans to acquire Titan Corp., a $2 billion purchase that would give it an entrée into private intelligence work as well as federal information technology contracting. Yet it also tied L-3 to the controversy over the role of Titan translators in the mistreatment of prisoners at the Abu Ghraib prison in Iraq. Titan was originally going to merge into Lockheed Martin, but a foreign bribery scandal prompted Lockheed to terminate the deal. As a result of the merger, L-3 became one of the top ten largest federal prime contractors.

After CEO Frank Lanza died in 2006, there was speculation that L-3 would be gobbled up by one of the larger military contracting giants. The company avoided that fate and also avoided criminal prosecution in connection with its admission of backdating stock options. Yet L-3 suffered a significant setback when the U.S. Army, apparently reacting to the controversy over Titan’s role at Abu Ghraib, rejected the company’s bid on a $4.6 billion contract to provide translators in Iraq, awarding it to DynCorp International instead. In late 2007, however, a federal judge dismissed a civil lawsuit against Titan brought on behalf of Abu Ghraib detainees.

Financial information

Here is how L-3 describes its four business segments:


The businesses in L-3's C³ISR reportable segment provide products and services for the global ISR market, specializing in signals intelligence (SIGINT) and communications intelligence (COMINT) systems. L-3 provides the warfighter with the unique ability to collect and analyze unknown electronic signals from command centers, communication nodes and air defense systems for real-time situational awareness and response. L-3 technologies connect a variety of airborne, space, ground and sea-based communication systems and provide transmission, processing, recording, monitoring and dissemination functionality. In addition, L-3 provides C³ systems and secure, high data rate communications systems and equipment for military and other U.S. Government and foreign government ISR applications, as well as intelligence, logistics and other support services to the DoD and U.S. Government intelligence agencies

Government Services:

The businesses in L-3's Government Services reportable segment provide a full range of communications systems support, engineering services, information technology (IT) services, teaching and training services, marksmanship training systems and services, intelligence support and analysis services. We sell these services primarily to the DoD, U.S. Government intelligence agencies and allied foreign governments. [MPRI is part of this segment.]

Aircraft Modernization & Maintenance:

L-3 offers comprehensive aircraft modernization, systems integration and life-cycle support services to tactical and maritime aircraft manufacturers around the world. L-3 is also a leading provider of contractor logistics support and life-cycle maintenance for over 4,000 government aircraft, including 1,600 military training aircraft.

Specialized Products:

L-3 has the broadest range of advanced electronics, aviation, ocean and propulsion, telemetry, microwave, SATCOM and antenna, electro-optical/infrared sensors, precision engagement, simulation and training, security and detection and naval power and control products for air, sea, ground and space applications in the defense industry.

Corporate crimes

L-3 Communications describes itself “a prime contractor in Command, Control and Communications, Intelligence, Surveillance and Reconnaissance (C³ISR), Government Services, Aircraft Modernization and Maintenance (AM&M) and has the broadest base of Specialized Products in the industry.” The company receives 74 percent of its revenues from Pentagon and another 6 percent from other parts of federal government, including intelligence agencies. The rest comes from foreign governments (7 percent) and commercial customers (13 percent).

L-3 is also a major player in the homeland security market, with products such as explosives detection systems, maritime radars and monitoring systems, cargo screeners, mine detectors, video surveillance systems, thermal imaging cameras, weapon sights for law enforcement and infrared defense systems.

L-3’s biggest corporate accountability issues were those inherited with the purchase of Titan Corp.: a foreign bribery case and the link to the Abu Ghraib prison scandal.

The bribery case involved payments to support the 2001 reelection of President Mathieu Kerekou in the West African nation of Benin, where Titan was involved in building a telecommunications system. In 2005 Titan paid $28.5 million to settle charges under the Foreign Corrupt Practices Act.

In 2004, prior to L-3’s purchase of Titan, an Army investigation of the Abu Ghraib abuses—first reported by Seymour Hersh in The New Yorker the year before—cited employees of Titan (as well as another contractor, CACI, which provided interrogators ) as being involved in the interrogations. The Justice Department did not prosecute the company or the employees, but civil lawsuits were brought against Titan and CACI. In November 2007, a federal judge dismissed the case against L-3 and Titan, but allowed it to proceed against CACI. In 2008 several new lawsuits were filed in U.S. federal courts against L-3 and CACI by Iraqi civilians with the assistance of the Center on Constitutional Rights.

In November 2006 the U.S. Labor Department reported that L-3 accounted for more contractor deaths (216) than any other company operating in Iraq. Many of those killed were Iraqi nationals working as translators for Titan.

Taken from www.crocodyl.org

A full report on L-3 Communication can be found at: http://www.corpwatch.org/article.php?id=13993

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