It’s been a tough few years for Tampa’s defense industry.
With the war in Iraq ending in 2011 and about two-thirds of the remaining 30,000 U.S. troops set to leave Afghanistan by the end of the year, the Pentagon was on a course to reduce its global footprint and the White House and Congress were planning to chop the war funding that went with it.
Thanks to the multiple whammy of troop reductions, the automatic spending cuts known as sequestration and the reliance on continuing resolutions to fund operations, Tampa area defense contractors, who had seen unprecedented growth since 9/11, experienced a sharp hit to their bottom lines. And reductions in their workforces. A study conducted last year for the Florida Defense Alliance projected 13,000 fewer defense-related jobs in the Tampa area by next year, representing a 9 percent drop from 141,700 jobs in the region in 2011.
But then came the Islamic State group, pouring out of Syria and sweeping across Iraq. The ensuing U.S. military response may see some local defense contractors benefit.
On Aug. 8, at the behest of the White House, U.S. Central Command, headquartered at MacDill Air Force Base, ordered airstrikes against Islamic State targets in Iraq. Then on Sept. 23, Centcom ordered aerial attacks on Islamic State targets in Syria.
The Pentagon estimates it now is spending between $7 million and $10 million a day to rain bombs and missiles on the Sunni insurgent group’s positions in Syria and Iraq and to pay for the 1,600 U.S. troops in Iraq, mostly serving as advisers in joint operations centers in Irbil and Baghdad. That figure includes the $10,400 an hour that the Center for Strategic and Budgetary Assessments says it costs to fly KC-135 aerial refueling tankers like the 16 based at MacDill, some of which are taking part in operations against Islamic State.
The cost of the so-far-unnamed operation at its current pace is slated to run more than $3.6 billion for a year — and even more should a larger number of troops be deployed and the pace of airstrikes increase, according to CSBA. With the White House and Pentagon promising a campaign that will last years, Defense Secretary Chuck Hagel and Joint Chiefs Chairman Martin Dempsey have raised the issue of how all this will be paid for, leading to a call by some in Congress for an increase in war funding, which was set to drop from about $80 billion this year to just under $60 billion next year.
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So how will all this affect local defense contractors?
Like chicken soup, it couldn’t hurt, say many who either make a living on war bucks or closely watch how they roll into the region. But how much the uptick in operations, and the commensurate spending, will help varies, depending on the company, experts say. The biggest opportunities likely will be in providing services to foreign governments and for operations being set up in Saudi Arabia and Jordan to train Syrian and Iraqi fighters.
Nationally, the big defense contractors already are benefiting from attacks on Islamic State, at least in the short run.
Raytheon, for instance, makes the Tomahawk Block IV cruise missile, of which nearly 50 have been fired at Islamic State positions in Syria at more than $1.2 million a pop. Raytheon and Boeing both make the GBU-39 Small Diameter Bombs that have been used in Syria and Iraq — at $214,000 each.
Though the Pentagon says it has adequate inventory levels, the bottom line is good news for the defense industry.
On Aug. 6, two days before U.S. warplanes began hitting Islamic State targets in Iraq, Raytheon stocks were trading at a yearly low of $89.52 a share, according to Google Finance. That jumped to $100.89 by Sept. 29, the highest price of the year. On Sept. 24, the Tucson, Arizona-headquartered company was awarded a $251 million contract for 231 Tomahawk Block IV All-Up-Round Missiles for the U.S. Navy and the United Kingdom, according to the Pentagon.
Similarly, on Aug. 6, Boeing stocks were trading at a yearly low of $118.34. That jumped to $128.77 by Sept. 29, according to Google Finance.
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With Centcom and U.S. Special Operations Command located in Tampa at MacDill, most major defense contractors have a presence in the region, something particularly important given that Socom, unlike any other major U.S. military command, has its own development and acquisition budget, now about $2 billion a year, with another $2 billion annually slotted for sustaining those items.
But by and large, the Tampa area is not a manufacturing hub.
Raytheon does have facilities in Largo and St. Petersburg, and last year it was awarded a $15 million modification to an existing contract with the Navy for the development of an antiaircraft detection system.
General Dynamics Ordnance and Tactical Systems makes various weapons systems, from multibarrelled guns to mortars, and is working on the yet-to-be-debuted Ground Mobility Vehicle for Socom. But General Dynamics does not manufacture here. It has about 300 employees at its headquarters office in St. Petersburg, spokeswoman Laurie VanBrocklin said. Company officials declined to talk about the effect of current operations on business, but VanBrocklin said the workforce number should remain steady.
The local trickle-down is hard to gauge, especially in the early phases of the fight against Islamic State, but it will come in several ways, said Greg Celestan, chairman and chief executive officer of Celestar Corp., one of many smaller local defense companies hit by the Pentagon’s downward budget pressures.
There are local companies that serve as subcontractors to some of the larger contractors, making components for some of the big-ticket items, said Celestan, past president of the Greater Tampa Chamber of Commerce.
Another benefit, he said, is that some contracts with the commands at MacDill have been extended because there is a reticence to transition or end contracts in the middle of a campaign.
With most local contractors providing services such as intelligence analysis, physical security and cybersecurity, logistics and IT, there may be additional opportunities for contracts with the commands, said Celestan, because with the previous wars winding down, capabilities they once required might be needed once again.
Syria and Iraq probably will be touched upon during the meeting Oct. 14 of the local National Defense Industry Association chapter, said Mary Allison Yourchisin, the chapter’s chairwoman at large. The group will meet with James Geurts, Socom’s acquisitions executive. But because Socom has no direct role in operations, and its acquisition authority is for special operations forces-specific goods and services, the only real impact would be if the Green Berets and other commandos deployed to Iraq have unique requirements.
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Adding to the flux is that after pushing for six years to be the president who ended wars, and who stepped back from the red line he drew in Syria over chemical weapons, Barack Obama suddenly has become the guy who ordered airstrikes in two different countries.
The footprint on the ground also is expanding. About 500 troops from the 1st Infantry Division are headed to Iraq to set up a headquarters operation there, adding to the potential need for contractor services down the road, Celestan said.
An increase in war funding would be a good barometer by which contractors can gauge the future, Celestan said.
Perhaps the biggest opportunities, though, may be with other governments.
Obama’s coalition to fight Islamic State has included countries such as Jordan, Saudi Arabia and the United Arab Emirates, whose aircraft have taken part in combat operations in many cases for the first time. In addition, there are operations being set up in Jordan and Saudi Arabia to train Iraqi and Syrian opposition forces.
All that creates opportunities for some local companies, said Tim Jones, chief executive officer of Cybrix, a 12-year-old Tampa-based systems integration and cybersecurity company.
“Now that they’ve gotten aircraft off the ground, they will need maintenance and logistic support,” Jones said. “Logistics is usually the weak link in operations. You have to get goods and supplies to the point end.”
Jones, a Navy veteran whose company has 25 employees and annual earnings that run from $14 million to $18 million, has had an office in Jordan for years and recently returned from UAE.
“If you want real opportunities, work with the foreign militaries and provide them support,” Jones said. “I do.”
One Orlando company knows firsthand the growth potential from foreign militaries, even if the weapons are provided by the U.S.
On Sept. 15, the Pentagon announced that Hellfire Systems LLC, of Orlando, was awarded a $68.7 million modification to acquire 1,361 Hellfire II tactical missiles for Iraq, Jordan, Indonesia, Saudi Arabia and Qatar.
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Given the nature of world events and Washington politics, planning for the future is a difficult task for defense companies.
Though the automatic spending cuts known as sequestration have been in abeyance, there is a very real possibility they will return, and with them, more upheaval.
Local legislators have mixed feelings about increasing war funding.
Florida’s U.S. Sen. Bill Nelson, a member of the Senate Armed Services Committee, “would like to see the cost of future airstrikes incorporated into the base budget,” said his spokesman, Dan McLaughlin. “But he’ll give careful consideration to any request for an increase in the overseas contingency operations funding from Defense Secretary Hagel and Gen. Dempsey.
U.S. Rep. David Jolly, R-Indian Shores, who spent a lot of time working on defense issues under his former boss, the late C.W. Bill Young, said he is against war funding, saying he would prefer a regular budget and then additional needs funded through passage of supplemental budgets.
Given all the vagaries, one former MacDill commander said it is time for local defense contractors to diversify.
“As we look at the future, we may be seeing a break in the clouds, but if it goes dark again, how is our industry going to sustain itself?” wonders retired Air Force Brig. Gen. Chip Diehl, who commanded MacDill from January to August 2001.
The local contracting community “needs a new definition of diversity,” he said, recommending that companies look beyond the Pentagon for opportunities.
“Emerging technologies are our real shining light,” said Diehl, who doesn’t see the current operations having a big impact locally. “Take them outside the Pentagon. Put them in the medical industry, finance and those sorts of industries.”
Diehl, vice president of the Tampa Bay Defense Alliance, has been a big proponent of creating a high tech corridor, an alternative to straight-up reliance on defense spending, stretching from Tampa east across the state.
“That plays right to the sweet spot of having research universities and community colleges and the companies we have here,” he said.