THE SECRET'S OUT: COVERT E-SYSTEMS INC. COVETS
COMMERCIAL SALES
By John Mintz
Washington Post
October 24, 1994
If Big Brother ever took control of the United
States, E-Systems Inc. would surely be its prime contractor. Consider:
* E-Systems designs spy satellite gear that can snap
photographs of automobile license plates from space and capture electronic
communications, from phone calls to rocket telemetry.
* E-Systems software can analyze those spy
satellite photos to see if anything has changed -- a Russian tank moved or an
Iraqi missile site built -- since the last shots were taken.
* E-Systems can build "electronic fences"
to police borders. It helped build one such network of sensors to monitor drug
traffickers along the U.S. border with Mexico, and the company says it hopes to
build a more sophisticated one for Saudi Arabia.
* And E-Systems hardware can help federal drug
enforcement agencies track cocaine planes and tap drug dealers' telephones.
In short, E-Systems' technologies, part of the
central nervous system for the nation's intelligence community, are regarded as
brilliant by intelligence agencies and Wall Street.
But the firm's closets also contain some classified
skeletons. Critics say in some ways the company is almost indistinguishable
from the CIA because it operates so secretly, lacks accountability and is
loaded with retirees from the CIA and other intelligence agencies.
E-Systems' critics say it has lied in legal proceedings to protect its
interests. {Details, Page A10.}
E-Systems, which is based in Dallas but has a strong
presence in Falls Church, is a company with an identity crisis. For decades a
fixture in classified work, it is accustomed to selling its wares only to the
intelligence community -- and doing it secretly.
But now, with competition increasing for a declining
number of classified contracts, E-Systems is desperate to change. For the first
time in its history, it wants to communicate with outsiders, loosen its
military-like corporate culture and become more entrepreneurial. The firm also
is trying to transform its secret technologies into things it can sell to the
public. One problem is that most of its classified gear is so capable and
expensive it must be "dumbed down" to be sold to outsiders.
"We don't have a clue how to market
commercially," said Lowell Lawson, chairman of E-Systems. Added company
spokesman John Kumpf, "When we try to break out and commercialize, people don't
know who the hell we are."
Some industry analysts say E-Systems must merge with
a large defense firm to ensure its survival, and there is speculation among
defense industry analysts that such a merger may be in the works.
Bethesda-based Martin Marietta Corp. often has been mentioned as a suitor, as
has fast-growing Loral Corp., whose chairman, Bernard Schwartz, effusively
praised E-Systems in a recent interview.
"It's a neat fit with Loral ... and has a great
technology base," Schwartz said.
The firm has one asset that could be worth billions
to any partner: the trust of the nation's intelligence establishment. Elliott
Rogers, a defense industry analyst with Cowen & Co., a New York-based
brokerage firm, says that when he asks intelligence officials which firm they
consider most reliable and discreet, the usual reply is E-Systems. "It is
viewed as so key partly because it keeps its mouth shut," he said.
'We Didn't Want to Talk ...'
E-Systems recently allowed the first visit ever by a
reporter to its headquarters and its plants after seven months of negotiations.
Security was so tight that on a tour of the firm's plant in Garland, Tex., a
company official kept track of what was said on not one, but two tape
recorders.
"We didn't want to talk to you," said
Lawson, a 29-year E-Systems veteran, in his wood-paneled office, filled with
paintings of the Old West. "I may not do this again ... The customer
doesn't want us talked about."
"The customer" is a term E-Systems employees
use often, as in "the customer is disappointed," to refer to the CIA,
the National Security Agency and other hush-hush agencies.
Classified contracts furnished $1.8 billion of
E-Systems' $2.1 billion in 1993 revenue, or 85 percent of sales -- the highest
percentage of any large firm. The firm wants the ratio to be half classified,
half unclassified by the year 2000.
With 15,625 employees, E-Systems has pared its work
force nearly 18 percent from its 1988 high of 19,000 people. It has 3,300
employees in the Washington area, mostly in Falls Church at its Melpar
division, which makes the reconnaissance gear used in spy planes to take
pictures and capture electronic signals.
The central problem for E-Systems, its officials
said, is a lack of experience in designing products or services for public
customers, known by some in the firm as the "white" world, as opposed
to those in the secretive intelligence environment, often referred to as
"black."
As one Air Force official put it, E-Systems
"has been black so long it doesn't know how to operate any other
way."
Even so, all the firm's divisions are dreaming up
new commercial ventures. For example, a machine the company designed for the
NSA now makes it possible for a police officer to tap 16 phone lines at once.
E-Systems also is seeking new uses for CIA-sponsored
computer technology that can process, enhance and compare spy satellite photos.
By filtering out clouds, fog, soot and snow, E-Systems computers can discern
subtle changes in the pictures -- such as a hatch door that's ajar at a Russian
missile base -- and help interpret the meaning, perhaps a missile launch.
Now the firm is adapting these computers to spot
differences over time in human tissue -- to note, for example, tiny breast
lumps that may be cancerous.
E-Systems also is commercializing gear it made years
ago to let the NSA store vast amounts of computer data -- the phone calls and
electronic bleeps recorded by spy satellites.
An E-Systems division called EMASS sells this
technology to oil companies keeping large quantities of seismic data, as well
as to banks and video archives. Linking several phone booth-sized EMASS
computers, it is possible to store 5 trillion pages of text -- a stack of paper
150 miles high -- and retrieve any page with lightning-fast speed.
Commercial uses might be found too for the company's
once-secret sensor gear, which could be valuable in detecting vehicle traffic
volume, for example, or mapping the Earth's underground strata.
Some E-Systems employees, fearful about sharing secrets
with outsiders, were uncomfortable in 1992 when the company hired former Xerox Corp.
executive Mike Allred to market EMASS to commercial firms, industry officials
said.
"A lot of walls have come down" since
then, Allred said.
Marketing Secrecy
E-Systems, founded by Texas aviation engineers in
the 1940s, specialized in aircraft electronics and was known as Temco. In 1960
it was snapped up by James J. Ling, an audacious Dallas wheeler-dealer who
built a motley conglomerate called LTV Corp.
By 1968 LTV was teetering under a debt load
Ling had accumulated. Soon LTV's board sacked him, but on his way out Ling
placed the financially failing Temco division, renamed LTV Electrosystems, in
the hands of his corporate planner, economist John W. Dixon.
Dixon was a visionary who quickly assigned his
engineers to work on a lucrative new business: extremely high-tech electronics
and computers for classified spy craft and surveillance systems.
LTV Electrosystems was a market leader from the
start. It was the dawn of the computer age, and the federal government was just
starting to build the classified computer networks that now, billions of
dollars later, handle much of the data collected by the U.S. intelligence community.
"We were there just at the right time,"
James Crowley, now E-Systems' general counsel, said of the firm's early work.
"There were only one or two other firms there too."
LTV Electrosystems was extremely secretive. One of
the few news stories about it concerned a lawsuit filed against the division by
the widow of an Electrosystems employee killed in the 1971 crash of an Air
Force plane on a classified mission in the South Pacific. It emerged that the
plane had been sent there to spy on a French atomic explosion.
There was little public notice too in 1972, when LTV
spun off Electrosystems, now renamed E-Systems, by selling its stake in
Electrosystems to investors.
In the early 1970s E-Systems won several key
contracts, such as installing communications gear on Air Force One, that helped
established its position in the secret world. The company has held on to this
and other classified contracts for decades.
An episode from the mid-1970s suggests the trust the
government had in E-Systems.
For decades the CIA had owned
"proprietary" airlines to help it conduct secret operations around
the world. By 1975 the agency had little need to continue the practice, since
the Vietnam War was over and the airlines' covers had been blown.
The CIA asked E-Systems and Lockheed, another
trusted contractor, to buy Air America and Air Asia, two CIA-owned airlines.
The firms weren't interested in Air America, known for swashbuckling airdrops
and other derring-do.
In 1975 E-Systems bought Air Asia, the assets of
which included a huge aircraft repair facility in Taiwan, for $1.9 million.
E-Systems said it lost money on the deal, but critics said the price was low
because audits showed Air Asia was worth $3.2 million.
The company's ties to the government have been laced
tighter over the years as it hired hundreds of CIA, NSA and military retirees
as employees or subcontractors.
For years its board of directors included retired
Navy admiral William F. Raborn, father of the Polaris missile program and CIA
director under President Lyndon B. Johnson. Another former high-ranking CIA
official, Lloyd K. Lauderdale, was E-Systems' vice president of research for
years. Oliver Kirby, a former deputy director at NSA, helped run one of the
company's divisions in the 1980s, and Peter Marino, a 16-year CIA veteran, is
chief of another.
CIA employees who are experts in high technology are
"automatic hires" for the firm, a former CIA official said.
"E-Systems made it a point to say, 'When you retire, come work for us.'
... E-Systems has one of the more unique relationships with the agency,"
he added, calling it "chummy."
A staff member of a congressional intelligence
committee said E-Systems is "virtually indistinguishable" from the
agencies it serves.
"Congress will ask for a briefing from
E-Systems, and the {CIA} program manager shows up," he said
"Sometimes he gives the briefing. They're interchangeable."
Safeguards
It's not easy divining what goes on at E-Systems.
For years, employees at E-Systems' closely guarded Greenville,
Tex., airfield have compared notes about various aircraft stored at remote
hangars. Employees said they often are asked to repaint the identifying numbers
on the planes' tails -- leading them to suspect they are being used on covert
missions.
"Nothing illegal is going on there,"
Lawson said.
Former employees said that for years E-Systems has
copied a tactic used by intelligence agencies: It sets up bogus secret
contracts, with phony code names and paperwork, to mislead potential snoopers
inside and outside the company. When asked about it, Lawson suggested that a
reporter "drop it."
Congressional and Pentagon investigators, former
E-Systems employees and an ex-CIA official said the government gives E-Systems
latitude to shift funds and secret equipment among classified intelligence
contracts in ways most contractors can't.
Lawson denied this. "We have an arm's-length
business with the CIA," he said. "They jump on us if we do anything
wrong. ... There are no secret kitties or diversions of funds. There's clear
accountability."
Lawson acknowledged that federal investigators and
even some company employees think the company gets special handling because the
intelligence community gives trusted classified contractors slack in following
paperwork and manufacturing specifications. This is done to ensure success of a
mission, such as getting a spy plane in the air quickly, he said.
Lawson agreed that the arrangement is
"tailor-made" to nurture suspicions among reporters and federal
investigators that E-Systems is a CIA front. However, Lawson said, "we
weren't, aren't, never have been" a CIA front.
The firm believes such suspicions helped prompt a
number of disgruntled former employees to file lawsuits against E-Systems, as
well as spurring a four-year federal investigation of allegations that the
company overcharged the government or inflated bids on contracts.
The company denies the allegations and says it
believes the probe is dormant. But knowledgeable sources say it is ongoing. The
Justice Department declines to comment. E-Systems officials say they have
cooperated fully with government officials and have provided more than a
million documents.
Nonetheless, for a company that makes keeping
secrets a key marketing tool, lawsuits and federal investigations are deeply
disturbing.
"We're a real quiet company," Lawson said.
"I don't want to see myself on Forbes's cover."
E-Systems:
* Chief executive: A. Lowell Lawson
* Headquarters: Dallas
* Divisions:
Garland, Tex.
Greenville, Tex.
Melpar in Falls Church
ECI in St. Petersburg, Fla.
* Work force: 15,625.
* Recent successes:
Landed contracts worth as much as $850 million to
upgrade U.S. and Australian submarine- hunting aircraft.
* Recent setbacks:
Lost bid to computerize federal student loans; and
the German government delayed execution of E-Systems contract to build
surveillance planes.
* Main competitors: Lockheed Corp., Martin Marietta
Corp., Hughes Aircraft Co., Loral Corp., Rockwell International Corp., TRW Inc.
FINANCIAL PICTURE
REVENUE IN BILLION (Chart not available.)
1993 SALES IN PERCENT
Reconnaissance and surveillance: 60%
Aircraft maintenance and modification: 18%
Command, control and communications: 16%
Navigation and controls: 6%
PROJECTS
E-Systems develops software and hardware used by the
CIA and NSA to take pictures and eavesdrop from spy satellites and planes. Its
gear also is used to gather and analyze the data at secret facilities. Among
its other projects, E-Systems:
* Installed the electronics and communications
systems in Air Force One and other White House aircraft.
* Fitted jets with communications gear for use by
past or present heads of state of Romania, Israel, Iran, Saudi Arabia, Nigeria
and Malaysia.
* Built the E-4B, nicknamed the "Doomsday
Plane," an airborne command post for the White House and Pentagon in a
nuclear attack. It has a miles-long trailing antenna to communicate with the
U.S. submarine fleet.
* Helped develop ground stations in China that
eavesdrop on Soviet missiles in flight. The United States shared the data with China.
* Equipped C-130 transports with special radar and
engines. They descend to low altitudes to drop and pick up commandos on
sabotage or hostage rescue missions. Launched after a failed U.S. hostage
rescue attempt in Iran.
* Developed satellite systems to verify Soviet and
Russian compliance with nuclear arms treaty agreements.
* Packed 707 jets with high-tech gear (photo of
RC-135, below) that fly from the Aleutian Islands and collect electronic
signals and snap photos under code names such as Cobra Ball. In 1983, the
Soviets shot down a Korean airliner, and killed 269 people, mistaking it for a
Cobra Ball jet.
* Makes, installs and runs electronic gear used by
law enforcement agencies to monitor drug dealers in this country and overseas.
Maintains Customs Service planes for surveillance of drug planes and ships.
CODE NAMES
A
sampling of the code names E-Systems uses on classified projects.
Rivet
Joint
Comfy
Bugle
Seek
Bandit
Have
Shell
Have
Xray
Have
Eyes
Credible
Falcon
Senior
Deb
Senior
Guardian
Senior
Quest
Quest
Junior
Creek
Window
Big Safari
Cobra
Ball
Cobra
Eye
Cobra
Dane
Cold
Helmet
Operation
Stallion
Woodstock
Desert
Tea
Desert
Wind
Big
Apple
Leader
Store
Combat
Sent
Burning
Wind
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