L-3's good defense is its best commercial offense. L-3 Communications Holdings provides products and services to the government based on Command, Control, Communications, Intelligence, Surveillance, and Reconnaissance (C3ISR), including systems for satellite, avionics (aircraft electronics), security, and marine communications. It also provides aircraft maintenance and modernization. The US government, primarily the Department of Defense (DoD), accounts for nearly 70% of its business, but L-3 is expanding its commercial offerings. The company derives all of its income from operating subsidiary L-3 Communications Corporation (L-3).
L-3 operates through four main segments: Electronic Systems, National Security Solutions (NSS), Communication Systems, and Aerospace Systems. Its most lucrative segment is Electronic Systems, which makes a variety of components, subsystems, and products and generates roughly 40% of its total sales each year. Aerospace Systems generates 35%, and the rest account for the remainder.
Subsidiaries include L-3 Communications Integrated Systems, L-3 Avionics Systems, L-3 Communications Vertex Aerospace, L-3 Communications Canada, L-3 Insight Technology, Interstate Electronics Corporation, L-3 Global Communications Solutions, and L-3 Fuzing & Ordnance Systems.
The company operates through nearly 400 locations in Australia, Canada, Europe, and the US. Of this total, it owns 35 locations and leases around 340. Almost 80% of total sales come from customers residing in the US.
L-3 has seen its net sales and profits slowly diminish over the last four years. Revenues dipped by 4% from $12.6 billion in 2013 to $12.1 billion in 2014. Profits also dropped 15% from $778 million in 2013 to $664 million in 2014.
L-3's revenues have slowed due to the loss of contracts with the SOFSA, Afghanistan Ministry of Defense (MoD), and Federal Aviation Administration (FAA) over the years. It also experienced lower sales related to linguist services, training, and logistics support projects for the US Army due to the drawdown of American military forces in Iraq.
With such a major amount of business derived from the US government and DoD (the US Army and Air Force collectively account for about 70% of its total revenue), the company is vulnerable to the priorities of the Pentagon and other government agencies, which have resulted in cuts in defense spending and additional troop withdrawals from the Middle East.
L-3 is using acquisitions as a means to benefit from changes in DoD and other government agency funding, currently prioritized on high-tech electronics and systems over more traditional combat warfare equipment. The focus on security systems, information technology (IT) and cyber security, intelligence, logistics, unmanned aircraft systems (UAS), and reconnaissance vehicles bodes well for L-3, since these products are in its portfolio.
In addition to acquisitions, the company enters into collaborative ventures with other businesses to develop new opportunities, especially in the area of providing full-service, rather than just products. Additionally, L-3 has been transitioning from providing individual products and components to bundled products and services, including logistics, MRO (maintenance, repair, and overall), and supply chain management. Its revenues from services is now neck-and-neck with that of its products, and L-3 plans to add additional services under existing programs.
Mergers and Acquisitions
In 2015 L-3 acquired UK-headquartered CTC Aviation Group (now known as L-3 CTC Ltd) for $220 million. L-3 CTC is a global airline pilot training and crew resourcing specialist catering to major airlines and retail customers globally. The acquisition expanded L-3’s Commercial Aviation Training business.
In 2014 L-3 picked up Virginia-based Data Tactics Corporation -- a specialized provider of Big Data analytics and cloud computing products serving the US DOD -- for $57 million and renamed it L-3 Data Tactics.