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Missiles, Drones & Hack Attacks

You don’t find many private companies engaged in the kind of enterprise in which Dynetics wraps itself. In spite of relentless buyout initiatives, CEO Marc Bendickson says the company is determined to resist and remain employee-owned.

Marc Bendickson, CEO of Dynetics, says the downturn in defense spending will probably continue for five years.

Marc Bendickson, CEO of Dynetics, says the downturn in defense spending will probably continue for five years.

Marc Bendickson is CEO of Dynetics, one of Alabama’s largest private companies — 1,055 employees, sales of $267 million — and one of the few private companies in the businesses of missile defense, space exploration and intelligence and surveillance.

Defense spending cuts, unmanned aerial vehicles and cybersecurity are all headline topics he talked about. Another subject he discussed — offensive cyber attacks by the U.S. — became a big headline a week after this interview, when a leaked classified document revealed that President Obama ordered national security officials to draft a list of targets for cyber attack.

Dynetics is host of a national conference on “deep dive” hacking attacks, Rocket City TakeDownCon, scheduled for July 15-16 in Huntsville.

In 1989, Bendickson helped lead an employee stock ownership purchase (ESOP) buyout of Dynetics from its founders. The company is still employee-owned, but Bendickson says it is a constant subject of buyout interest in today’s climate of consolidation fueled by budget constraints.

Every company has its core group of employees who personally contribute to the growth and well-being of a company, the group that accounts for the major strides and growth. The ESOP helps to encourage a larger group of people to be in that core group of employees. You’ve heard of the 80-20 rule, where the 20 percent is the core, committed group of employees. We are more on the 50-50 side.

We have three sources of capital, and, frankly, we haven’t needed that much capital for many years. Being an analytical company, what we need are computers and simulation tools. Retained earnings are our main source of capital. And when there are opportunities for employees to buy company stock, we have revenue from that direction. And we have had a very good relationship with a commercial banking company — first it was Colonial, then it was bought by BB&T. BB&T funded our last two building expansions. 

One of our key strategies is to combine our analytic capability with outstanding hardware prototyping. We had to have a unique facility that was reconfigurable and could handle business of various classification levels, with the right kind of tools and test equipment. That’s what we built into the Solutions Complex. We’re an engineering company specializing in complex solutions. We do extremely well when we are brought problems that need scientific solutions. So we seek customers that have those kinds of needs.

For example, as we use more unmanned aerial vehicles in defense of the nation, those things have a lot of software on them. We develop software solutions that guide those vehicles, and, a lot of the time, those software products are in the field and operational within six months. We also build ground stations for controlling those vehicles, and the sensors and payloads that go on them. In the space area, we acquired a propulsion company a few years ago and are working with the Space Launch System to look at ways for that vehicle to use liquid as well as solid fuel, different thruster configurations. We’re working with Pratt & Whitney to revitalize, for the SLS, the Rocketdyne engines that were used on the original Saturn missile. We design sensors for customers for unmanned surveillance, whether it is perimeter security or border security, systems that look for low-velocity intruders.

We break our business into three areas. Defense is still 65 to 70 percent of our total business. Federal systems, including work for NASA, are probably 15 percent of the business. And the other 12 to 15 percent is commercial systems, including work for Ford and Chrysler and space companies, as well. We’re still predominantly a DOD company.

NASA has their SLS program, a huge new program for NASA and one that will carry us to the future, whether we go back to the moon or go on to land on asteroids or Mars. National support seems to have stabilized and has been stronger here lately. In the commercial space arena, there are a lot of emerging needs. We’ll have moderate growth opportunities in those areas.

Cyber security is an important emerging area. We entered into that 15 years ago on the commercial side, working with hospitals and power companies. In Huntsville, Mayor Tommy Battle has encouraged us to form a coalition of companies and grow the cyber business sector. What we are doing in the upcoming conference will be dealing with some of the most complex issues of cyber security, including embedded hardware — far beyond simple network security. We’ve brought in national experts to speak, and they are some of the best.

Cyber security is a tough problem, one that is going to be with us from now on. At one point, we thought we could isolate ourselves, our computers, within classified areas. We’re finding now this problem is so much deeper, with such complex threats. It won’t be solved easily.

I can’t speak on that (cyber attack as an offensive weapon), but we’d be interested in those kinds of things, on the contracting side of it. With the current budget constraints, the U.S. first has to solve the traditional problems with weapons systems. I don’t think we have the budget to tackle that (offensive cyber weapons) the way we’d like to.

Defense business always goes through cycles. I joined the company in ’75, the year after it was formed, and it did well for a while, doing a lot in the intelligence arena, but then the Berlin Wall came down. We saw a tremendous drop in intelligence requirements, and we went through our first layoffs as a company in that period of time. We see cycles come and go. When you’re in a time when the country is more into supporting war efforts, spending on R&D comes down. We’re certainly seeing a period of that now, with R&D getting squeezed.

I think we’re going to continue to see declines in the defense budget over the next five years. There’s got to be a decline in spending and a reshuffling, and the dollars designated for certain big programs will be put on hold. We saw that in the ’90s, and we’re seeing it again.

There’s tremendous pressure for us to merge or be acquired — a lot of that pressure right now, with budgets on the decline. And the degree of pressure depends on the size of the company. As a mid-tier company that has crossed the 1,000-employee total, we can no longer compete for small business set-aside contracts. Some of the vehicles that were helpful to us are no longer available. That’s why you see a small fraction of companies cross the 1,000 level. A great majority — in the 90 percent range — that do cross that level get acquired or merged. But it’s a decision we discussed for more than a decade, as far back as when we were still a 500-employee company. We made a firm decision to keep growing. We know it is a tough area to be in, but we intend to remain independent and continue to grow. It’s a path we have chosen, and we are happy with that choice.

Chris McFadyen is the editorial director of Business Alabama.

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