By Carten Cordell
January 3, 2020
The airstrike that killed Iranian commander Maj. Gen. Qassim Suleimani and others Thursday sent ripples back to the D.C. government contractor community as tensions heightened in the Middle East.
Those ripples include contractors' analyses of workforce security in the region, whether more investment is coming in antidrone defense systems and what heightened conflict in the Middle East could mean for their revenues.
Wall Street certainly saw dollar signs after the Pentagon announced the strike. Shares for defense companies such as Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman Corp. (NYSE: NOC), L3Harris Corp. (NYSE: LHX), General Dynamics Corp. (NYSE: GD) and Raytheon Co. (NYSE: RTN) rose in early trading Friday morning, following the Department of Defense’s statement that it had carried out an airstrike that killed Soleimani, the head of Iran’s Quds Force — a unit within the country’s Islamic Revolutionary Guard Corps that specializes in military intelligence and irregular warfare — and others.
While the early reaction from the financial sector may linger in the aftermath of the attack, defense experts caution that the airstrike in isolation won’t likely do much to alter defense spending. The Pentagon itself said in its statement that the strike was meant to put an end to the conflict by "deterring future Iranian attack plans."
Prior economic forecasts, including from federal contracting trade group the Professional Services Council, projected flat defense spending in fiscal 2021 after the Bipartisan Budget Act of 2019 set the base Defense budget at $671.5 billion, with an additional $69 billion in conflict-specific spending outside of the DOD base budget known as Overseas Contingency Operations (OCO) funding.
And though those levels are contingent on there not being a national security crisis, the airstrike alone likely won’t shift the fiscal 2021 budget, which is essentially finalized, PSC president David Berteau said Friday.
“That is nowhere near a big enough triggering event to change resource allocations or even necessarily change the FY2021 budget, although it could lead to subsequent events that could reach that magnitude,” he said. The one exception is the contingency spending.
Congress has, in the past, increased OCO funding in response to real-time events, Berteau said. And that spending wouldn't necessarily be limited to fiscal 2021; Congress also has the ability to allocate additional OCO funding in the current year, fiscal 2020.
Eye on drones
The New York Times reported Friday the airstrike was carried out by an MQ-9 Reaper, a hunter-killer unmanned aerial vehicle (UAV) built by San Diego-based General Atomics.
Multiple components for MQ-9 are produced by companies such as Northrop Grumman and Raytheon, including targeting systems, signals intelligence equipment, imagery-based radar and some munitions.
L3Harris and other companies make components such as bomb-release units that can be equipped on the MQ-9 to carry payload ordinance.
It’s unclear whether any of these components were used in Thursday's attack. Northrop and L3Harris executives deferred to General Atomics and the Air Force. Executives from GA weren’t immediately available for comment. DOD officials deferred to their previous statement on the airstrike. Raytheon executives also weren't immediately available for comment.
The use of UAVs has become increasingly common in the Middle East, however, meaning that contractors are not only providing updated drones, but also providing the U.S. government with more systems to defend against them.
The industry has responded to attacks such as the September assault by Houthi rebels in Yemen — who are alleged to be supported by Iran — on an oil processing plant in Saudi Arabia by offering new types of anti-drone weapons using directed energy and other methods. Those anti-drone systems could become even more valuable if the conflict intensifies.
“It’s not just, how do we have better drones like they have more drones, but, how do we defend against them as well?” said Thomas Karako, a senior fellow with the International Security Program and the director of the Missile Defense Project at the Center for Strategic and International Studies. “It’s one thing to have a constant air presence over Iraq, but the Iranians themselves are sending more stuff into Iraq, so therefore, how do we protect ourselves from them?”
The industry security posture
But beyond the budget or revenue impacts, some of which may be longer-term, Berteau said contractors will likely act in the short-term to look at how they approach the security of their own personnel as they prepare for a potential retaliatory attack.
“Keep in mind what triggered this was the death of a U.S. government contractor,” said Berteau, citing the Dec. 27 death of a contractor in a rocket attack in Baghdad credited to Iranian-backed militias. “Contractors aren’t issued military rifles. They’re more vulnerable. Companies have to be thinking right now, ‘What do I need to do differently, what do I need to be prepared for, will the government have threat information, will they share it with me?’”
Those efforts will likely ramp up as the U.S. plans to deploy 3,500 more troops to Kuwait to reinforce the region, which will, in turn, require greater contractor support.