Faulty Airport Sniffers Could Be Good News for American Science and Engineering

| About: American Science (ASEI)

Every time I see an article like this one in the Washington Post, which points out the flaws in current screening technologies, I itch to make another purchase of shares in American Science and Engineering (NASDAQ:ASEI).

The main point of the article is that the explosive sniffers which airports have rolled out over the last year or two are not working very well. If you're not familiar with these, they're the small machines that sit off to the side at the security checkpoint, and TSA screeners rub your luggage with some sort of little swab, then put that swab into the machine so it can "sniff" out any explosive materials you may have come into contact with. Apparently, the machines work great in the lab but get clogged up with dust and dirt in busy airports and don't work so well after a little while.

So the TSA is considering halting purchases of those machines, and instead upgrading the x-ray scanners to get a higher quality image that will help them scope out liquids or gels inside carry-on luggage.

There are tons of companies that produce x-ray scanners. According to the article, at least 20 companies are involved in the preliminary testing right now, so this doesn't necessarily indicate that ASEI is going to get any additional business from the TSA for luggage scanning.

And in fact, ASEI has noted in the past that they're not pursuing that market particularly aggressively, largely because of the massive amount of competition and the limited opportunity they have to make their machines stand out in the crowd.

It's possible that that strategic decision will change as the TSA pushes for more capable scanners. After all, it's hard to argue against the supremacy of a dual backscatter/standard x-ray for identifing all kinds of contraband and explosives.

But even if it doesn't change, I think the continuing focus on security screening has to be good for ASEI. Their current hope for TSA business is the SmartCheck personnel scanning devices that check people, not bags. However, their Gemini package screening machines, now in use at some high security locations like the White House and Supreme Court, are certainly capable of doing this work as well.

None of this means that any additional business is necessarily coming AS&E's way right away. The most significant near term news would be reports of any serious testing of Gemini or SmartCheck by the FDA, since that gives a potential market of hundreds of US airports. However, the TSA has been promising to test SmartCheck for most of the past year and as far as I know has not yet done so.

But it is yet another indication of the pressure being put on security officials everywhere -- not just in Homeland Security or just in the US, but around the world -- to use the best technology available to improve and automate screening procedures to close the current massive gaps. And whether you're talking about cargo security (as with AS&E's recent radiation screening contract), mobile scanning for borders or car bombs (using the Z-Backscatter Van, which continues to rack up record sales), personal screening, or package screening, ASEI has a strong argument that they can provide the most capable systems in the world with their patented backscatter technologies.

Earnings are lumpy with the big and uneven orders they typically see from government buyers, but it's starting to look as though every dip due to a relatively soft quarter of orders has been a buying opportunity. I don't know if we'll see more of that in the near future, but I continue to consider adding to my position.

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