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Interview: Chris Bernhardt

Apr. 14, 2014 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
(Sgt. Pete Mobbs/UK Ministry of Defence)
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US defense support services provider DynCorp International opened for business in the United Kingdom last month as part of a strategy aimed at putting the fizz back in the performance of a company buffeted recently by the drawdown of forces in Afghanistan, reduced business in Iraq and government budget problems at home.

Those problems resulted in a 17 percent sales decline last year compared with 2012. Earnings suffered, too.

Deployed operations work may be in decline, but defense departments around the globe are turning increasingly to contractors to undertake support tasks previously done by the military.

Traditionally strong in supporting US and Middle East military customers, the company has set up a global business arm with a remit to become more aggressive in tapping markets in places like Britain and Australia.

DynCorp President Chris Bernhardt wonít confirm it, but one of his immediate targets is the acquisition of the up-for-sale British state-owned Defence Support Group, which repairs and maintains military vehicles.

Q. What sectors of the support services market are you aiming at with your new London-based operation?

A. We see maintenance, repair and overhaul [MRO] opportunities in the land vehicles and aviation sectors as a priority, as well as going after facilities management work.

There are also opportunities to support emergency service requirements ó so itís not about a single opportunity, itís about a pipeline.

Over time we could look at bringing over other parts of the business, like cyber and intelligence training, but clearly there are some very clever people here already in sectors like cyber, so we arenít going to willy-nilly grab things from our portfolio and introduce them to the UK with≠out intense analysis of the competition.

The UK company also addresses other European countries and certain African communities, not just in defense but in commercial activities, supporting things like humanitarian and oil exploration operations. It could be training and mentoring in Libya, it could be something in Somalia or Tanzania ó in fact, lots of places where Britain has foreign policy interests, if not military interests.

Q. What size of business are you targeting from your UK-based operation?

A. I think this could easily be a multihundred-million-pound business in three years and reach annual revenues of £500 million [US $829.3 million] in the next five to 10 years.

Some of that will come from us bidding alone, and some may be with partners. We already have an existing joint venture with Babcock in the UK, and we are not so arrogant as to avoid further partnering if required.

Q. Why has it taken DynCorp 60 years to get here?

A. Iíve only been with the company for six months, so itís taken me just six months to get here.

Actually we already have some activities in the UK through a joint venture with Babcock, undertaking facilities management, although that deal is coming to a close.

The answer to your question is that the nature of the armed forces here and elsewhere is changing. Countries who were at war in Afghanistan are drawing down, and our business needs to reflect the change in how governments are thinking about their militaries.

The UK is going to need to adapt to having a more flexible and rapidly deployable force with a smaller footprint and a different balance between regulars, reserves and contractors than previously.

When we looked at that fundamental shift, which is not too different from whatís going on in the US, it was a good match for our experience and capabilities.

Q. People say you are amongst the bidders for the UK Ministry of Defenceís Defence Support Group. Can a relatively unknown contractor here be trusted with a key British Army vehicle resource?

A. Itís our policy never to comment on acquisition speculation.

But can we be trusted? Well, we already maintain over 200 types of aircraft and 80 types of military vehicles at over 100 locations around the world.

A good example of our land MRO experience is in the United Arab Emirates with Al Taif Technical Services. We have created, from nothing, a facility which has performed full MRO services on over 20,000 heavy, medium and light type vehicles in four years. Itís a world-class facility delivering performance figures far in advance of UK facilities.

We re-engineer how things are repaired, and we have very novel supply-chain processes. We think we could provide that as a capability should it be required by the UK or other armed forces in Europe.

Q. So the UK is part of a new global growth strategy for DynCorp that is driven by a downturn in deployed operations?

A. The company recognized that sooner or later there would be a drawdown. So to replace that revenue, you have to diversify into other areas. The creation of DynCorp Global last year to take advantage of our logistics and aviation capabilities in more international markets is one response to that.

But we are also diversifying in other areas as well. Domestically we are moving into the IT [information technology] support and intelligence and cyber training communities with the US government. We are being very aggressive and have had several competitive wins this year.

Looking out over five years, I think we see that anything that is war-driven is likely to be less than 10 percent to 15 percent of our portfolio, with the rest balanced between our Global and other businesses.

Q. So where else is the Global strategy going to take you?

A. We have set up a similar operation in Australia to go after Asia and Pacific Rim markets as part of the US pivot in that region.

We also want to leverage the resources we have in logistics and aviation in the domestic Australian market and, of course, we already have a large presence in Saudi Arabia and the United Arab Emirates.

Just recently we have been selected for government deals in Australia and Cambodia.

Q. Are you expecting more business from the US pivot to Asia?

A. I expect to see over time the wider US vision of the pivot to Asia yielding more tangible opportunities for us. As the pivot occurs, we plan on being there, and we are in some of the key areas right now.

Clearly, though, there is rethinking and rebasing going on in the US military, and thatís going to have to be worked through first given the budget and other constraints.

Q. Do you see any opportunity for continuing your presence in Afghanistan beyond the US withdrawal there?

A. Fundamentally, if the US government pulls out entirely and the bilateral security agreement is not signed by the Afghans, I think it would be extremely difficult for anybody to do anything in Afghanistan without the assurance of minimum troop levels provided by the US.

Afghanistan is a dangerous place and will remain so. Itís an opportunity but it will remain dangerous, so if the US pulls out I donít see that as something we could do on our own.

Q. Will declining US budgets change the outlook for support services companies?

A. I donít see a fundamental change. The US armed services understand keenly that maintenance and support of troops and equipment is vital.

The budgets have been coming down as a result of whatís happening in Afghanistan and sequestration, but support and modernization as a percentage of the budget is about the same. In fact, modernization, readiness and sustainability will be the top priorities of each of the US military services, and I believe thatís going to be the case in the UK as well.

Q. What do you want DynCorp to look like in five years?

A. I want us to be a real international company with our global business accounting for at least 20 percent of revenues. At the minute we are far south of that, in single figures.

I also want to see a balanced business with customer diversity across Army, Air Force, intelligence, special forces and global activities with thriving intelligence, cyber and IT operations.

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