DynCorp to Maintain Navy’s Test Aircraft at NAS Patuxent River

DynCorp International(DI) will continue to support the U.S. Navy efforts at NAS Patuxent River in Maryland. The company has worked on Navy aircraft providing maintenance support since the 1960’s. They won another five year contract to continue to do that this week. The value of the contract if all options are exercised is almost $500 million.

NAS Patuxent River is where the Navy manages its aircraft acquisition as well as does testing and trains test pilots. They have a varied fleet of training and test support aircraft. Also any new aircraft getting ready to enter service is tested at Pax River. Currently systems like the Boeing’s (BA) new maritime patrol aircraft, the P-8, and Lockheed Martin’s (LMT) Joint Strike Fighter are undergoing tests there.

The contract will require DynCorp to maintain all of the aircraft assigned to Pax River including unmanned ones as well as any that are temporarily based there. They will also support environmental clean up actions related to the aircraft and recovery operations.

The military has been using contractors to provide maintenance for selected aircraft for years. In the Nineties as part of the downsizing of the Defense Department many depots for aircraft were closed or converted from government run to contractor facilities. With the recent discussion of in-sourcing the U.S. Air Force and some of the other services had discussed bringing this capability back into the government. It is not clear how much work will actually be taken back yet.

For a fleet of very mixed aircraft like at Pax River it makes sense for a contractor to perform the maintenance. It would require less personnel then the government most likely would need with subsequent cost savings.

As the defense budget decreases the discussion about what mix of organic and Contractor Logistics Support (CLS) will increase as the military looks to save money on this type of work. Based on what cost analysts discover the Government may increase or decrease the use of CLS depending on the potential cost savings.

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

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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House Begins to Cut Defense Budget

The House Armed Services Committee (HASC) approved by a 60 to 1 vote their version of the 2012 Defense Budget. This is basically similar to what was requested by the Obama Administration and reflects the first real reduction to U.S. defense spending since the attacks of 9/11.

As in previous budgets it was split into three parts: first, the base budget which funds the U.S. military and its investment, production, training and support activities; second, the cost of “Overseas Contingency Operations” (OCO) which used to be called the Global War on Terror (GWOT) which are the costs associated with operations in Iraq and Afghanistan and finally it also includes money for the Department of Energy (DOE) support to the U.S. military which is primarily related to nuclear weapons.

The base budget was about $535 billion which was a slight increase on the $533.8 billion programmed in 2010 for such activities. Due to the fact that no 2011 budget was officially passed by Congress until late in the year the Department of Defense relied on continuing resolution which restricted spending to 2010 levels. When the final budget deal was struck funding the rest of the year total planned spending remained consistent with 2010 levels. The Obama Administration had requested $548 billion with almost $160 billion for OCO. This amount was not approved or provided.

The HASC bill approved amounts to a reduction as the OCO funding was reduced to only $119 billion from the $130 billion in 2010 and the $160 billion proposed in 2011. Total spending in 2012 based on the HASC will be $690 billion including the DOE funding of $18 billion. This is a net increase over 2010 but almost $20 billion less then the planned spending in 2011.

What does this all mean for defense contractors? If the House totals hold, and after the work with the Appropriations Committee and the Senate there may be many changes in what the money is spent on, it will be the first net reduction in U.S. defense spending in 10 years. This will mean that some contracts won’t get funded and some companies will see their revenue and earnings reduced.

The cuts to OCO mean those companies heavily involved in providing support and equipment for Iraq and Afghanistan will see the first cuts. The Army’s LOGCAP IV contract provides much of this support for deployed forces and companies like DynCorp International, Fluor and KBR have received large contracts as part of it. The reduction to OCO may affect LOGCAP and those companies involved in it.

It will also mean less bullets, beans and gas will be bought to support the troops in Iraq especially. Suppliers of basic items may see reductions in the amount of items purchased from them. This includes ATK who make ammunition as well as the various gasoline refiners and providers. As the fighting in Iraq and Afghanistan winds down the DoD will be concentrating on making new weapon systems and repairing and refitting the equipment used by the military in those operations.

If and when all of the U.S. and Allied forces return from the fight there will be no need for OCO funding at all. This seems to indicate that the base U.S. defense budget will sink to about $500 – $600 billion a year. This will provide opportunities for those companies providing new, advanced weapons as well as supporting the U.S. military in its bases in the U.S., Asia and Europe. The next round of cuts though will be to this base budget. That will affect the entire U.S. defense industry and may lead to reductions in the number of contractors either through M&A or just moving to other business lines.

Defense spending has been a major prop to the U.S. economy as a whole as it supports businesses and jobs across all of the states. If the civil market has not recovered sufficiently cuts to this money will have a negative effect on many local economies across the U.S. already being experienced as some contracts are eliminated or reduced.
This HASC vote may be the first step into a period like the Nineties which saw wholesale changes to the U.S. defense industry and the countries’ industrial base as a whole.

Photo from David Paul Ohmer’s Flickr Photostream.

Article first published as House Begins to Cut Defense Budget on Technorati.

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Two M&A Actions Announced Involving DynCorp and Kratos Defense

Two defense related Merger & Acquisitions (M&A) were announced yesterday. One of these announcements involving DynCorp International (DCO) was the first blockbuster deal of the year. In the second Kratos Defense & Security Solutions, Inc. (KTOS) said they would be acquiring the maker of tactical shelters.

Cerebus Capital Management, most famous for their ill-fated purchase of Chrysler from Daimler Benz, has agreed to acquire DynCorp International in a deal worth about $1 billion. The proposed purchase of each share for $17.55 must still be approved by the shareholders.

DynCorp is best known for providing training and intelligence support to the U.S State Department and military in Iraq and Afghanistan. They are in hot competition with Xe Services for a large contract to provide training to the Afghan National Police (ANP).

Kratos will acquire Gichner Holdings, Inc. for roughly $133 million. Gichner makes tents, tactical shelters and other storage solutions mainly for military systems. They are used by UAV systems like the Predator and Reaper as well a the PATRIOT air defense system. This deal still needs regulatory approval.

While there were a substantial number of deals in the last twelve months a report by PriceWaterhouseCooper found that they were at a ten year low in total value. These figures were even more skewed by two large deals — the sale of TASC by Northrop Grumman (NOC) valued at over $1.6 billion and Boeing’s (BA) acquisition of Vought’s 787 production line.

If there is a contraction in defense spending by the U.S. and other countries as some have been expecting that might lead to more deals. In the Nineties when the Reagan build up ended with the “Peace Dividend” there was severe contraction in the U.S. defense industry with several major mergers and acquisitions.

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DynCorp International To Support Building Afghan Army

DynCorp International was awarded a contract from the U.S. Army to provide support to the Combined Security Transition Command-Afghanistan (CSTC-A) and NATO Training Mission (NTM). These organizations are helping the Afghan Army and Security forces become more effective. The contract is for two years and worth over $150 million. If a third year option is exercised the value could increase to over $230 million.

DynCorp International will provide staff to support the CSTC-A as well as directly interact with the Afghan soldiers and policemen. The task of creating an effective internal security force is key to winning the fight against the Taliban and building a stable country.

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Taos Industries Team Wins LOGCAP IV Task Order in Afghanistan — Press Release

Taos Industries Team Wins LOGCAP IV Task Order in Afghanistan

DynCorp International Heads Team with Taos Industries and CH2M HILL

HUNTSVILLE, Ala., July 13, 2009 – Taos Industries, a subsidiary of Agility Defense & Government Services, and its partners DynCorp International and CH2M HILL have been awarded a task order for logistics support for the Afghanistan-South Area of Responsibility (AOR) under the U.S. Army’s LOGCAP IV contract.

The value of the task order is $643.5 million for the one-year base period. The award also includes four one-year option periods valued at $5.874 billion. DynCorp International is the prime contractor, and Taos Industries and CH2M Hill are subcontractors on the LOGCAP IV team. The Army has directed the team to begin work immediately.

Under LOGCAP IV, the Army’s Logistics Civil Augmentation Program, contractors provide contingency services in support of the U.S. military.

Under the new task order, the team will provide existing bases in the Afghanistan South AOR with operations and maintenance support, including facilities management, electrical power, water, sewage and waste management, laundry operations, food services and transportation motor pool operations. In addition, the team will provide construction services for additional sites.

“As a proud member of the DynCorp International team, we look forward to delivering the excellent performance that has helped us to continually expand our scope of work for government customers,” said Joe Cosumano, president of Taos Industries.

This is the third task order award to the DynCorp-Taos Industries-CH2M HILL team. Under earlier task orders, the team provides:

* Services at Udairi Army Airfield in Kuwait. Those services include firefighting, fire protection support, equipment and vehicle maintenance, airfield operations, flight dispatch, air traffic control tower services, and weather observation and forecasting services.
* Logistics support services in Kuwait. Those services include movement-control operations, in-transit logistics management, facilities management, including base camp services, life support and operations and maintenance.

About Taos Industries Inc.

Taos Industries, based in Huntsville, Ala., is a subsidiary of Agility Defense & Government Services. Taos provides logistics and commodity services, specialized procurement, and household relocation services to the U.S. Department of Defense, Department of State, NATO and other government and defense customers. Taos offers base operations support, and defense reutilization and marketing services, as well as contingency operations and natural disaster support. Taos Industries has been supplying the U.S. government and its allies since 1991.

For more information about Taos Industries, contact Hobie Frady at 256.772.7743 or visit www.taos-inc.com.

About Agility Defense & Government Services

Agility Defense & Government Services is the public sector arm of Agility. It provides complete supply chain management, logistics services and commodity services to defense and government customers. With more than 550 offices in 120 countries, Agility DGS and its parent offer a vast network of global land, sea and air transportation capabilities, including warehousing and storage.

For more information, contact Jim Cox, Agility DGS vice president of public affairs and marketing, at 703.417.6050 or at [email protected], or visit www.agilitylogistics.com.


For more information about the Logistics Civil Augmentation Program, visit http://www.army.mil/-news/2009/03/27/18864-army-segues-from-logcap-iii-to-iv/index.html.

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DynCorp Has A Record Year

DynCorp International reported their fourth quarter and yearly results yesterday. The company had a record year with revenue up forty-five percent over the year prior. For the fourth quarter the defense contractor has revenues of almost a billion dollars. Earnings per share for the quarter doubled to 34 cents.

The company in April had reorganized into three business segments. These groups would focus on their market areas more easily and help to grow their business. One of the new segments, Global Linguist Solutions, was to be a joint venture with another company. By its name it is clear that DynCorp International does a great deal of business providing translator and intelligence support services to the U.S. military and other government services.

The company is quite confident that there guidance for 2010 will be met and most likely would exceed analyst estimates.

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Kuwait Buys AH-64 CLS

The US Army awarded DynCorp a contract to support the AH-64 Apache attack helicopters operated by Kuwait. MarketWatch has the press release here. The CLS contract is worth $11 M in the first year. Kuwait purchased a small number of these advanced aircraft through the US Army. DynCorp has other contracts with both the US and Kuwait governments to perform this type of work on other aircraft. Use of CLS, especially for non-combat systems, has been growing in the US and UK as it is considered cheaper as you do not have the associated personnel and training costs of using service personnel. Of course, CLS in support of FMS systems is also common as it is the simplest way for the nations to get the support they need for advanced weapons.

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DoD clears way ahead for $4.6 Billion translation contract

Dyncorp was cleared to go ahead and begin work on a $4.6 B contract it had won to provide translation services in Iraq to the US DoD. It had been protested by one of the losers. See the story here. L3 dropped the protest after it became part of the team that Dyncorp had set up to perform the services. That is one way around the protests process. Of course it helps that this is one large service contract with plenty of work to spread around. L3 was the incumbent who lost the contract.

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