Rocket Man.

One big growth success story just wasn't enough for Frank Lanza. It's round two -- and this ambitious CEO plans to launch L-3 into a top spot in the defense sector, fueling growth through savvy acquisitions and seizing commercial opportunities wherever they lie.

It wasn't that he hadn't seen plenty of success in his career. By the time Frank Lanza was 49, he was president and COO of Loral, a once-bankrupt concern that he helped fashion into a $7 billion contender. When Lockheed Martin bought Loral's defense electronics business in 1996, Lanza made a tidy $41 million on the deal and became president and COO of its Systems Integration Sector. It might have been a pinnacle for some--but there was something missing in it for Lanza.

"COO--that's not bad. But I was never chairman and CEO, and there's a big difference," he says. "I had a terrific relationship with [then Loral CEO] Bernard Schwartz, and we worked together for many years--but he was still the boss."

That's why, at 65 years old, when others his age might have been thinking about full-time golfing or sailing the seven seas, Lanza was eagerly spying an opportunity to head up his own operation from the corner office and to get out from under Lockheed's heavy bureaucratic thumb. In 1997, he and Robert LaPenta, VP of finance at Lockheed, proposed to spin off nine units of the company that were originally purchased from Loral, plus one business acquired from GE in 1993. Norman Augustine, then CEO of Lockheed, signed off on the $505 million deal (which included 34.9 percent ownership of the new company, although Lockheed has since sold its interest), and L-3 Communications was born. Lanza took top rank of chairman and CEO and LaPenta, a numbers guy with an aptitude for identifying the potential in underperforming companies, became president and CFO. (The third "L" stands for Lehman Brothers, which originally owned 50 percent of shares and now owns roughly 15 percent.) The mission for these two entrepreneurs, sa ys Lanza: "To try to do Loral again."

They're not quite there yet, but the goal is hardly a flight of fancy. With L-3 on track to post sales of $1.96 billion in 2000, representing 40 percent year-to-year growth since 1997--thanks in part to more than 20 strategic acquisitions--the company has inspired admiration and confidence on Wall Street, where it once found dispassionate disinterest. In three years, L-3 has become the leading supplier of flight-data recorders, or "black boxes," to the defense and space sectors, edging out larger competitors. And with a growing arsenal of communications products for aerospace, defense, and higher-margin commercial sectors, the young company seems poised for even greater growth.

In fact, Salomon Smith Barney, which initiated coverage of L-3 in September with an outperform rating, said in an equity research report that L-3 has the greatest growth prospects among its peers. The stock currently trades at a P/E of 21.6 based on 2001E EPS, compared with a peer average of 13.6, but the report claims the company deserves a higher valuation. Much of its technology is commercially deployable, the reports says, and its expected annual earnings growth of 27 percent over the next two years is more than twice the average growth forecast for the S&P 500 and the average aerospace company.

Not bad for a mid-size player in a rapidly shrinking industry. The Darwinian-style consolidation within the defense/aerospace industry--which Lanza says "has gone too far"--has actually benefited L-3 in that, "because there has been so much consolidation at the top line, with the large companies, including Loral, the little companies are left fragmented and can't make it."

And that's where L-3 comes in--picking up small companies that might be foundering in the open field and folding them into its various operating segments where synergies are apparent. L-3 also gobbles up businesses divested by competitors, such as Honeywell's Traffic Alert Avoidance System (TCAS), which L-3 purchased in April. L-3's success in acquisitions, says Rob Spingarn, equity analyst at Salomon Smith Barney and author of the report, is due in no small measure to a keen ability to extract value from troubled businesses or segments by quickly selling off whichever pieces aren't working. "They don't try to make something work if it doesn't have a lot of potential. And that's where a lot of other companies have gone wrong, says Spingarn.

Lanza applies that same cautious precision to L-3's commercial strategy. Because its proprietary products--such as crash recorders, flight-simulator technology, broadband wireless equipment, and network-security software--are made for the defense sector, they offer reliability and durability not often found outside the industry. But while people from within the company are encouraged to come up with new ideas for bringing products commercial, Lanza says it's all too easy to become enamored with the idea of selling products commercially and ignore the potential pitfalls.

"[These ideas] sound good on paper, but 98 percent of them fail," says Lanza, "and you can't make too many mistakes in commercial." He says he's completely committed to keeping L-3 close to its knitting, no matter how lucrative the margins in commercial. "We're a military company and we're not going away from that." The fact that the government foots more than half the bill for L-3's $300 million R&D--the company kicks in the rest--gives them some incentive to stay focused on technology geared toward the needs of the military. "So that's our core business, our core technology. But it's not going to prevent us, when we have commercial products, from trying to find an avenue to get better stockholder value." Still, Lanza points out, it's a process that requires careful planning; selling products to commercial airlines means going up against the Honeywells and Raytheons, companies that have better developed marketing and distribution for their products and can offer end-to-end packages that include products L-3 sells.

But Lanza says that focusing on just one element of an aircraft's cockpit--crash recorders, for example--and becoming best-of-breed for that product, has helped L-3 sell well against competitors. "Our customers--Delta, American, US Air, etc.--will buy our product even though a Honeywell can package billions of dollars worth of product," says Lanza. The sale of other products that are more highly integrated into the whole of the cockpit's technology, such as collision avoidance, require hooking up with a partner with worldwide distribution muscle. "In that case, our only job is to deliver the product; they worry about the marketing, distribution and support," he says. "If we can't find that partner company, we just won't do it."

It's that kind of no-nonsense, methodical leadership that has started analysts like Spingarn singing L-3's praises and recommending its stock as a long-term buy, despite near-term risks of further defense-budget shrinkage. L-3, like other companies showing profits in 1999, suffered some as investors poured money into dot-coms. "It almost became bad if you made money. Better to go out with a lot of top line and to hell with the bottom line," says Lanza. But the recent correction has shifted focus and L-3's stock is still trading near its 52-week high of $67. Of course, if it had been up to Lanza, L-3 never would have gone public in the first place. "But we knew with L-3 we had to be a certain size or we wouldn't make it. Nobody will finance a breakout defense company, period--not like they did 25 years ago," he says. "So we had to be big enough to get the attention of the financial community and that's why we went public. I would have preferred to stay private. Why do I have to worry about all these analysts asking me questions? Who needs that kind of aggravation?"

Today, L-3 seems to have no trouble getting cash, and many attribute that to its seasoned management. In fact, it's the value that Lanza and LaPenta bring to the table that is likely to keep the company from being acquired anytime in the near future, says Spingarn. "It's an attractive business to a larger buyer, but only if Frank and Bob are there, because they're the ones who know how to execute this kind of growth model. Others have proven they can't do it. So it's not really worth buying L-3 unless you get these two guys."

These days, it's not all that common to see a CEO considered quite so integral to the success of his or her company, but then, Lanza has been around long enough to prove he can do the job, having grown Loral from millions to billions. But even Lanza admits that was a very different time, a pioneer period the CEO recalls fondly--and with more than a little nostalgia. "It was during a timeline we'll never see again, the exciting years where defense and high technology were just coming up. The Silicon Valleys of the world thought defense was a hot-ticket item," he says. "And when we started out, there wasn't this high-tech commercial security blanket--you had to develop everything yourself."

It was also a growing industry and a buyer's market, and Loral made dozens of acquisitions, buying defense segments from the likes of IBM, Ford, Unisys, and Fairchild. "There were a lot of big properties for sale and today there are none," observes Lanza.

"It was exciting, too, because technology was just going crazy. We had launched the first satellites into space; we landed on the moon--a lot of crazy things were going on. Today you've got a much more stable defense. You don't have a cold war. There's no Soviet Union or Warsaw block to worry about." And, he adds, technology may be developing rapidly, but not to the extent that it did 15 or 20 years ago. "Now the ability to invent new things that have a material impact on the defense sector, from a device standpoint, is far less. Now we're trying to invent lasers that can shoot down missiles--but first we had to invent the laser," he says. "And it's exciting to invent the laser."

But despite the altered landscape, Lanza grows animated when talking about the prospect of building another company from scratch. "I never thought I'd get a chance to do it again. In your life, sometimes you get one shot at it if you're lucky," he says. "And Loral was a lucky shot." This second chance means Lanza--who believes mandatory retirement of talented executives is a uniquely American tragedy--isn't turning over the reins any time soon. He does enjoy a few leisure pursuits, including playing tennis and running a restaurant business with his three sons. But life without work, according to Lanza is, in a word, "boring."

When asked of the company's next move, Lanza's answer earns a chuckle from others in his office. "We're gonna go buy Lockheed." But the twinkle in his eye suggests he's only half-joking.

"You never can tell."