While other segments of the company are actually posting losses, California-based OSI Systems announced in April that a division specializing in whole-body imagers during the first three months of the year enjoyed a 23 percent leap in revenues over the same period in 2009 to more than $69 million due to major government investments around the globe in additional security equipment.
Company chairman and CEO Deepak Chopra told investors during an April 26 conference call that income for OSI’s security division known as Rapiscan broke past records with operating profits more than doubling to roughly $7 million in its third fiscal quarter despite the “challenging economic environment.”
The level of market activity within this industry is currently unprecedented, both domestically and internationally. The funnel of orders we are chasing is at an all-time high. Internationally there has been increased focus recently on the body scanners. We are currently in discussions with a number of key international airports and aviation authorities regarding the body scanners following the [Transportation Security Administration’s] decision to deploy the scanners domestically in the U.S. We remain one of only two TSA-qualified vendors for body scanners.
Support for the X-ray technology, which unlike traditional metal detectors enables security screeners to see underneath the clothing of travelers, gained momentum when 23-year-old Umar Farouk Abdulmutallab became known around the world as the “underwear bomber” for allegedly trying to blow up Northwest Flight 253, which had nearly 300 passengers on board.
Plans were already in place for the TSA to buy whole-body imagers known as Secure 1000s from Rapiscan in part using funds from President Obama’s economic stimulus program. But demand in the United States and internationally expanded quickly following the attempted attack, making this relatively obscure company more visible among procurement officials.
The federal government so far has placed two orders with Rapiscan worth a combined $36 million. That’s part of a larger indefinite quantity contract the company received in September of 2009 that could generate as much as $173 million for parent OSI Systems if U.S. authorities carry it out completely.
Then in February, company executives announced that they had inked a deal with the government of Nigeria for Secure 1000s after the country became an international focal point of attention due to the underwear bomber’s flight originating there. Days before that, authorities in Great Britain selected Rapiscan for new full-body scanners they wished to place in the Heathrow and Manchester international airports. The UK specifically said it wanted the scanners as a result of the Christmas Day bomb plot.
Details of those arrangements weren’t disclosed publicly by the company, but OSI has said that orders for its Secure 1000 totaled $50 million as of mid-May. Rapiscan also produces security equipment for scanning traveler baggage and revealed yet another deal in January, this time with Mexico. The $35 million contract with a state-owned company based in Guadalajara calls for Rapiscan to install X-ray equipment capable of screening baggage “at multiple Mexican airports.”
Wall Street investors responded to all of these new opportunities for Rapiscan by driving up the share price of OSI Systems at the turn of the year to $32.58, double the company’s 52-week low in 2009 of $16.31.
As for complaints about the intrusive nature of the scanners, federal authorities say security personnel are unable to directly see private parts of the body. Scanners deployed in the Netherlands, where Abdulmutallab reportedly waited for a connecting flight to the United States, rely on software that alerts a screener when potentially dangerous concealed items are detected, rather than operators being required to view an X-ray scan of each passenger. Rapiscan says its technology can identify organic materials and items that are not metallic, such as ceramic weapons, liquids, narcotics and plastic explosives. Some critics have nonetheless referred to full-body scanners as virtual strip searches.
That’s not the only controversy OSI Systems has faced since the attempted bombing made it a global star. Some observers have condemned the so-called “full-body scanner lobby,” pointing out that former homeland security chief Michael Chertoff advocated using the imagers during his time in the Bush administration. Chertoff turned up that advocacy after Abdulmutallab’s arrest. However, he eventually disclosed that Rapiscan was a client of the private security consulting business he established after leaving government.
It’s also worth pointing out that during the first quarter of this year alone, Rapiscan spent $169,000 on lobbying expenses, which it loosely says in public records was aimed at “procurement policy” and “federal government oversight and funding of homeland security.”
Flickr image by Bapper-Barry