Defense work remains strong in region

By Alex Gary

BusinessRockford.com

The number of defense contracts won by Rock River Valley companies inched upward in 2007, although the amount of money tied to the contracts dipped, according to data just released by a Web site that tracks U.S. Department of Defense spending.

In 2007, according to governmentcontractswon.com, 61 companies in Boone, Ogle, Stephenson and Winnebago counties won 441 contracts worth about $136 million in work.

The number of contracts is up from 424 last year, and the number of companies winning the work was down slightly, but the dollars fall well short of the $172.5 million worth of prime contracts awarded to local companies in 2006.

Still, the conflicts in Iraq and Afghanistan continue to be profitable for dozens of local companies. In 2000, the year before the Sept. 11 terrorist attacks plunged the U.S. into the Mideast conflicts, just 20 companies won DOD contracts, worth about $62 million. (Local companies that won their first contracts this decade)

In fact, the U.S. military has been at it so long that the fastest-growing area of opportunity in defense contracting is equipment repair.

“Replacement parts are a big thing right now. The military has equipment that is literally falling apart,” said John DiGiacomo, director of Rock Valley College’s Procurement Technical Assistance Center, which helps companies navigate the various oceans of bureaucracy required to work with federal agencies.

“The military has machines all over the world that need to be maintained, and that’s a real opportunity for companies in this area.”

That goes for companies large and small. Woodward Governor, which employs about 1,500 people at its Loves Park and Rockton operations, had its best year since 2004, landing $15.6 million worth of work in 2007. Woodward’s local operations landed 143 small contracts to provide service and spare parts for aircraft engines. Woodward has systems on such things as the Apache attack helicopter, the Black Hawk assault helicopter, F-14 Tomcat and T-38 Talon jet.

Of course, that’s a portion of the $1 billion-plus the company will take in this year as a maker of industrial controls and fuel systems for General Electric, Caterpillar and other customers.

At the other end of the spectrum, where defense work boosts the bottom line even more, are such companies as TR Machine Inc. in Davis, which has won nearly $400,000 in contracts over the past five years. ACME Grinding & Manufacturing in Belvidere and Machine-Tek Inc. in Rockford won their first set of contracts in 2007.

The growing market for military replacement parts is an area that the region’s largest defense contractor, SupplyCore Inc., was looking to penetrate in March 2007, when it bought the Manufacturing Alliance of the Rock River Valley (MARRV), a nonprofit created to organize small manufacturers into networks to compete for larger jobs.

SupplyCore was hoping to use the network to bid for replacement-parts contracts. So far, though, the company hasn’t won any major work through its MARRV connections. It has bid on a large contract to provide fleet support to military tactical wheeled vehicles, but the government keeps delaying a final commitment.

“That’s par for the course with the federal government,” SupplyCore CEO Peter Provenzano said. “Award dates slip the same way solicitation dates slip.”

Provenzano said the company, which has about 90 employees and 2007 sales of nearly $160 million, according to Hoovers.com, is continuing to work with local manufacturers on pricing.

“We’ve bid a lot of smaller contracts, but the MARRV community needs to be more competitive,” he said. “Our regional pricing hasn’t fared as well outside the region or even Wisconsin. It’s important to us to help local manufacturers, but at the end of the day we have to be competitive.”

SupplyCore is eager to diversify because its meteoric growth in providing “soft goods” — blankets, sheets, paper towels — to military bases worldwide has leveled off. The value of defense contracts won by the company based in downtown Rockford grew from $9.3 million in 2000 to $141.9 million in 2006. In 2007, the number of contracts won increased from 21 to 35, but their value fell to $89.9 million.

“We didn’t win any significant new contracts in 2007, (but) we had a number of contracts reawarded to us,” Provenzano said. “We’re working on a lot of new contracts, and we’re hopeful.”

Every company with its toes in the military pool are watching the presidential election closely because the presumptive candidates for the Democratic and Republican parties could mean different futures for defense contractors. Most believe Republican John McCain is much more likely than Democrat Barack Obama to maintain a large military presence in Iraq and, at least theoretically, maintain a higher level of military spending.

Fred Young, CEO of Forest City Gear in Roscoe, said military spending will remain lucrative no matter what the outcome in November.

“Will military spending go down because of the election? I suspect if Obama wins (the answer) would be yes,” Young said. “But it takes quite a while for the pendulum to switch directions.

“There is so much equipment really worn out because of Afghanistan and Iraq that there is going to be a very strong market for several years. The military chews through so much equipment just in training, and it doesn’t take a lot of work to keep small companies busy.”

Reach Assistant Business Editor Alex Gary at agary@rrstar.com or 815-987-1339.