DynCorp not sweating possible State Department cuts

While President Donald Trump has proposed dramatic cuts to the State Department budget, McLean-based global logistics contractor DynCorp International Inc. isn’t worried.

That’s because, as CEO Lewis Von Thaer told investors on a fourth-quarter earnings call Wednesday, the budget “will still provide funds for robust, core diplomatic activity such as operations, maintenance, logistics, security, transportation and IT support.”

“We don’t see our role at the State Department significantly impacted by the proposed budget,” Von Thaer added.

Trump’s budget blueprint for fiscal 2018 requests $25.6 billion in base funding for the State Department and the U.S. Agency for International Development (USAID). This is a $10.1 billion cut, or 28 percent reduction, compared to current fiscal 2017 spending.

In a report issued earlier this month, credit rating firm Moody’s Investors Service Inc. wrote that Trump’s cuts to the agency could have an impact on companies like DynCorp, which would “face a more difficult operating environment” with agency “funding thereto highlighted as a targeted bill payor for increased spending elsewhere.”

The budget does, however, include $2.2 billion for new embassy construction and maintenance in 2018.

Also working in DynCorp’s favor is that Trump doesn’t have the ultimate budget authority. That rests with Congress, which already has some leaders calling his budget “dead on arrival.”

Von Thaer seemed encouraged by Trump’s calls for increased defense spending — a possible 10 percent boost under the new administration for fiscal 2018. He is particularly encouraged about the budget’s focus on readiness.

“We’ll all have to stay tuned to see what comes out of Congress but we welcome this focus of increasing defense readiness by the administration,” Von Thaer said. “That’s much of what we do.”

In September 2016, DynCorp lost the 11-and-a-half-year, $10 billion Worldwide Aviation Support Services contract— performing aviation maintenance on aircraft used to conduct counternarcotics missions — to rival bidder Palm Bay, Florida-based AAR Airlift Group Inc. This represented a key State Department contract for which DynCorp had been the prime contractor over the past 24 years. DynCorp has since taken the State Department decision to the courts in an attempt to wrestle it back.

In the interim, DynCorp has received two extensions on the program, ensuring that the company will remain on it until at least August. Von Thaer said on the call that he expects the most recent extension will provide about $200 million in revenue for the company over the eight months in 2017, as well as a transition period to move the work over to AAR, should DynCorp fail to win the work back in court.

Another major State Department program for DynCorp involves providing life support services under the Afghanistan Life Support Services contract. That contract, which DynCorp won in January 2015, has a ceiling value of $750 million and has options last for the next three years.

James Bach covers federal contracting.

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