Planning Systems Charts New Course

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Planning Systems Charts New Course

By Nick Wakeman
Staff Writer

Planning Systems Inc., a small systems integrator and engineering services company in McLean, Va., has taken steps to bolster its core business and exploit new government customers since its split earlier this year from Lockheed Martin Corp., Bethesda, Md.

PSI officials negotiated a buyout in May of the 40 percent stake the industry giant held in the company, ending a relationship built on the Cold War.

The deal gave PSI's 300-plus employees complete control of their company. The company's employee stock ownership plan owned the other 60 percent of the company.

Alan Friedman, PSI's president and chief executive, is counting on the company to reach the $50 million to $60 million revenue mark within the next five years. PSI made about $34 million in revenues for the company's 1997 fiscal year that ended July 31.


Planning Systems photo

Alan Friedman,
president and CEO of Planning Systems Inc.

To attain that goal, PSI will continue to focus on the U.S. Navy, which represents about 80 percent of its business, Friedman said.

The Navy's importance as a customer was underscored in August, when PSI bought the Alabama and New Hampshire operations of Essex Corp., a Columbia, Md.-based IT professional services company. The purchase added about 50 people, who were working on Navy projects that complement PSI's work, and will increase revenues by about $2 million.

"They bring us different customers and technology," Falconi said. Essex divisions were working on submarine maintenance.

PSI builds custom systems for remote sensing, modeling and simulation for the service and performs research and development work in areas such as ocean acoustics.

The company also wants to increase its business with non-Department of Defense agencies such as NASA, the National Institutes of Health and the Federal Aviation Administration, he said. For example, the company is now building wind tunnel instrumentation for NASA based on its underwater acoustics work, Friedman said.

In 1989, Lockheed bought a 40 percent interest in PSI because of the company's anti-submarine warfare technology, Friedman said. "The Berlin Wall came down the next year and a lot of [defense] plans changed," he said.

The Navy remains a good market for PSI, Friedman said, although U.S. defense dollars may be dwindling. "They are not building new ships or planes but they are trying to find ways to do better with what they have," he said.

The company's small size helps it stay focused on its core capabilities and respond to its customers, Friedman said.

A key to gaining new civilian agency business is the Small Business Administration's Small Business Innovative Research program, which is open to companies with less than 500 employees. That program, which awards a $100,000 grant to start a project and more money if the research advances, has helped PSI win work in the past three years for NASA, NIH and the Air Force, Falconi said.

"We were always independent of Lockheed Martin," Friedman said. But Lockheed Martin's large
minority stake in PSI sometimes created a perception problem. Customers wanted assurance that PSI was independent of Lockheed Martin, he said.

"They don't have to worry about Lockheed Martin now," said Tom Millon, a principle with Willamette Management Associates, McLean, Va. He conducts evaluations of employee-owned companies so the firms can comply with Department of Labor and Internal Revenue Service regulations.

"PSI has made a very strong investment in themselves," Millon said. "It is all their own stake now."

The company began preparing in the mid-1990s to be financially ready for the buyout, and then negotiated with Lockheed Martin for about a year before completing the deal, said Robert Falconi, PSI's chief financial officer.

Under the leadership of its former CEO Gil Jacobs, Friedman's predecessor, the company concentrated on its profitability, Falconi said. "We had to accumulate the resources for the buyout," he said.

But, Jacobs, who convinced Lockheed Martin to sell its stake in PSI, died of a heart attack the week before the deal closed in May.

Friedman, who was executive vice president at the time, completed the deal, Falconi said.

Despite the acquisition of the Essex division, PSI management wants the company to evolve slowly.

"We try to build a good career environment," Friedman said. That means that explosive growth is not the main company goal, he said.

Indeed, Friedman does not want the company to grow beyond 500 employees, so the company can continue to qualify for the Small Business Administration grants.

Millon praised the go-slow approach. "Their strength is that they are very steady," he said.


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