Is There a Market in Afghanistan and Iraq for U.S. Defense Contractors?

by: Matthew Potter
May 31, 2011

Category: afghanistan, Alliant Techsystems, Business Line, Companies, Contract Additions, Contract Awards, Countries, Department of Defense, Dyncorp, Events, Federal Budget Process, Iraq, IT, logistics, Restructuring, Services, training | RSS 2.0

Now that the U.S. is beginning to seriously drawdown troops from Iraq and Afghanistan and scale back their missions the focus will move to building up those countries internal security and armed forces. Much of their training and equipment so far has been provided through the U.S. either by direct transfer, sales or funding. The removal of U.S. forces will accelerate these kinds of deals. Iraq, unlike Afghanistan, has its own funding available through its oil production which gives it a little more leeway in deciding what to buy.

The U.S. is committed right now to withdraw the last of its 47,000 troops from Iraq in this year. The two governments are in discussion of whether to extend the presence but no decision has been made yet. The British have already removed all of their forces. The end of that mission would mean security of the entire country of Iraq would belong to its Army and Ministry of Interior forces.

The U.S. has provided large amounts of equipment and training to Iraq. Much of this has been of Russian design although produced all over the world. Alliant Techsystems (ATK) for instance has been given contracts to provide “non-standard” ammunition. The company is the largest producer of ammunition in the U.S. and makes different types of bullets and shells for the U.S. military. “Non-standard” in this case means in the former Soviet Union sizes for use by Iraq and Afghan forces that tend to be equipped with AK-47 and Russian support weapons. ATK will use sources in Eastern Europe to provide them.

Afghanistan has also recently signed contracts with two U.S. companies for training helicopters and aircraft. MD Helicopters received a $186 million contract to build six light helicopters to train new Afghan rotary wing pilots. Initially six aircraft will be purchased but up to fifty-four could be. Cessna Aircraft, part of Textron (TXT), just won a fixed wing training contract worth about $88 million. This will be for six Cessna 182T and 26 208B aircraft for basic training.

One of the largest current contracts is through the U.S. State Department with DynCorp, privately held by Cerberus Capital. This is for training support to the Afghan military and police. The contract was controversial in that it was protested by then Blackwater who felt the billion dollar deal should have been awarded to them. This provides an example of the amount of money that is out there for these kinds of contracts.

The next step will be to determine what future opportunities are there. The Iraqi military will be buying much more heavy equipment then a nation like Afghanistan. It already has purchased tanks, armored vehicles, aircraft and helicopters. Many of these while not American made are bought through the U.S. military or with financial aid. Further contracts like this may be expected. For example last week the U.S. Army negotiated a contract with Russian company, Mil, to provide 21 Mi-17 helicopters to Afghanistan at a cost of up to $300 million. U.S. companies while they won’t be supplying hardware will be able to provide training, maintenance and program support to both the U.S. and the Iraq and Afghan users of these kinds of items.

One issue that hangs over all of this is the need for U.S. contractors to gain more overseas businesses. The U.S. defense budget will decline in the near future. In order to maintain the current level of sales and earnings more business will be needed from foreign sources. The Iraq and Afghanistan markets should favor the U.S. but due to the needs of those countries, their familiarity with Russian types of weapons, and the low level of technology they are buying it might be difficult. Certainly in a few years Iraq might be looking at American fighters such as the F-16 or F/A-18 but not in the immediate future. Technology transfer rules also affect the ability of these types of sales.

U.S. contractors have already made a great deal of money supporting the fighting in Iraq and Afghanistan. Much of this has been through logistics and training support rather then providing hardware directly to these two new governments. There may be opportunities in the future for larger, more complex contracts but it may take several years as the two militaries are built up. In the short term though it will be contracts for supply, maintenance and training where the market will be. Much of the money for those efforts will still be provided by the U.S. taxpayer either directly or through foreign aid. The time when Afghanistan and Iraq place large orders with their own tax money is still a ways off.

Photo from Photo from Christian Brigg’s Flickr photostream.

Article first published as Is There a Future Market in Afghanistan and Iraq for U.S. Defense Contractors? on Technorati.

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