Who's profiting from the Iraq war?

By Michael Brush

In a few weeks, Gen. David Petraeus and the Bush administration will report to Congress on the progress of the U.S. military's troop surge in Iraq.

But some of the war's winners are already clear: military contractors who supply everything from bodyguards to bombs, clean socks to ready-to-eat meals. "For the companies involved, this has been a real gravy train," says William Hartung, who tracks defense spending for the New America Foundation.

The White House has proposed military spending of $647 billion in 2008. Adjusted for inflation, that would be the highest level since World War II -- topping even expenditures during Vietnam and the Reagan years, calculates Hartung. The current request for Iraq-related spending for 2008 is $116 billion, which would raise total Iraq war spending to $567 billion.

Who's getting all that money? Sometimes it can be difficult to tell. "There isn't good visibility on where the money goes," says Steven Kosiak of the Center for Strategic and Budgetary Assessments. But you can get a snapshot of who's been getting a good chunk of the Iraq-related spending in two ways.

• Talk back: What's your view on companies that profit from the Iraq war?

 

The first step is to scour a vast database of more than $400 billion in annual government contracts, more than 70% of which are from the Department of Defense. It's called the Federal Procurement Data System. I turned to a private contractor of my own, Eagle Eye, for some (free) expert assistance in navigating the database.

Eagle Eye mined the database for all Iraq-related contracts from 2003 through 2006 (the most recent year for which numbers are available). That catches everything from spending on base maintenance and bulletproof vests to ammo and combat boots. We tallied the numbers to find the top 10 companies out of thousands of contractors.

The second step is to look at the Pentagon's own budget to see which companies are building the major weapons systems that support the war in Iraq.

The Top 10

It's no surprise that KBR Inc. (KBR, news, msgs), a division of Halliburton (HAL, news, msgs) during the years we examined, tops the first list, compiled by Eagle Eye, with $17.2 billion in Iraq-related war revenue for 2003-2006. KBR is one of the largest construction and energy field-service companies in the world. It has a long history of collaborating with the U.S. government on war-related construction.

 

• Videos: Recent news on Halliburton

In Iraq, KBR has been working on base construction and maintenance, oil-field repairs, infrastructure projects and logistics support. KBR got about a fifth of its revenue from the Iraq war in 2006, according to our calculations.

"We are proud to serve the troops," says a KBR spokeswoman. "We are providing the troops with essential services and the comforts of home that allow them to stay focused on the dangerous and important missions they face daily."

Continued: The No. 2 slot

But why does a private-equity shop called Veritas Capital Fund take the No. 2 slot? That's easy. It specializes in investing in defense and aerospace companies. So Veritas owns a portfolio of companies -- and has a stake in others -- that pull down big Iraq-related contracts.

DynCorp International (DCP, news, msgs), which Veritas bought in 2005 and spun out last year, offers security services and police training, as well as logistical services. Veritas' McNeil Technologies provides interpreter and translation services to the military and U.S. government agencies in Iraq. Another of its companies, Wornick, supplies military rations.

It's also no big surprise that U.S.-based companies like Washington Group International (WNG, news, msgs), Fluor (FLR, news, msgs), Perini (PCR, news, msgs) and Parsons are on our top 10 list. They've landed many of the contracts to restore, repair and maintain oil fields, power plants, schools, public water systems and military bases. But the award of contracts to build the U.S. Embassy in Baghdad to First Kuwaiti General Trading & Contracting left many analysts scratching their heads.

Environmental Chemical does munitions disposal, while International American Products sets up systems that deliver electricity to military camps. L3 Communications (LLL, news, msgs) offers security screening services, linguists, training and law-enforcement services, and some equipment replacement.

10 companies making the most in Iraq* (millions of dollars)

Rank	Company		Amount
		2003	2004	2005	2006	Total
1.	KBR Inc. (KBR, news, msgs) and Halliburton (HAL, news, msgs)	$2,550	$5,809	$4,505	$4,362	$17,226
2.	Veritas Capital Fund	0.7	208	850	386	1,444
3.	Washington Group International (WNG, news, msgs)	111	205	533	82	931
4.	Environmental Chemical	0	192	360	326	878
5.	International American Products	58	283	310	108	759
6.	Fluor (FLR, news, msgs)	116	413	123	105	757
7.	Perini (PCR, news, msgs)	72	312	185	81	650
8.	Parsons	0	248	120	172	540
9.	First Kuwaiti General Trading & Contracting	0	7	469	24	500
10.	L-3 Communications (LLL, news, msgs)	1	9	148	201	359

*Goods and services contracted specifically for Iraq. Source: Eagle Eye

Two companies that have seen their revenue shoot up the most in the ongoing military buildup -- largely because of Iraq-related spending -- are Armor Holdings and Renco, according to Hartung's calculations. They don't make our list because their overall defense-related revenue is too small. But they have done phenomenally well.

Armor Holdings, which sells vehicle and personnel armor, saw defense-related revenue shoot up 2,747% between 2001 and 2006, to $634.9 million. Armor is now a division of BAE Systems (BAESY, news, msgs).

Renco, which makes the extra-wide all-terrain vehicle known as the Humvee, saw Defense Department revenue rise 1,260% over the same period, to $1.9 billion.

Misspent funds

Not all of the Iraq-war money is well spent. "Because of the urgency of the war, a lot of these contracts have been subject to less scrutiny," says Hartung. Another problem is that the war has been funded outside of the regular defense budget process. Instead, it gets funded through "emergency" spending bills called supplementals, which offer much less detail and get less scrutiny on Capitol Hill.

 

Hartung believes we've only seen the tip of the iceberg in allegations of fraud and corruption related to Iraq war spending. "Congress is starting to look into it, but it has not yet gotten down to specific questions," says Hartung.

Details of wrongdoing are being uncovered by the Office of the Special Inspector General for Iraq Reconstruction, and you can also find summaries of misconduct here.

Hidden winners

Of course, there's a vast collection of military hardware and technology from fighter jets and naval vessels to spy satellites that are used in the Iraq war effort. But they're paid for by the broader Pentagon budget, so they won't show up in a scan of the federal procurement database for Iraq-related spending.

 

To see who has benefited from the underlying buildup in defense spending under the Bush administration for the Iraq war and other anti-terror and defense efforts, I calculated who got the most in Department of Defense contracts from 2002 through 2006. You can see the top seven in my second chart.

U.S. Department of Defense contracts* (billions of dollars)

2002	2003	2004	2005	2006	Total
1	Lockheed Martin (LMT, news, msgs)	$17	$22	$20.7	$19.4	$26.6	$105.7
2	Boeing (BA, news, msgs)	16.5	17.3	17	18.3	20.3	89.4
3	Northrop Grumman (NOC, news, msgs)	8.7	11.1	11.9	13.5	16.6	61.8
4	General Dynamics (GD, news, msgs)	6.9	8.2	9.6	10.6	10.5	45.8
5	Raytheon (RTN, news, msgs)	7	7.9	8.5	9.1	10	42.5
6	KBR Inc. (KBR, news, msgs)	0.5	3.9	8	5.8	6	24.2
7	United Technologies (UTX, news, msgs)	3.6	4.5	5	5	4.4	22.5
	Total defense contracts	171	209	230.7	269	295	1,174.70

*More than $25,000 for any field of operation. Source: Department of Defense

While all of these companies have benefited from the Bush administration's defense spending ramp-up since the terror attacks of Sept. 11, 2001, not all are equally exposed to the Iraq war effort, says defense sector analyst Paul Nisbet of JSA Research.

In addition to ships and Gulfstream planes, General Dynamics (GD, news, msgs) makes ground vehicles and ammunition, so it generates a fair amount of revenue directly from Iraq war spending. But Lockheed Martin (LMT, news, msgs), which is working on next-generation military aircraft and also makes military electronics and satellites, has little direct exposure to the war, says Nisbet. Neither does Northrop Grumman (NOC, news, msgs), which makes ships designed to last three decades or more.

• Videos: Recent news on Lockheed Martin

Of all the companies on my second list, KBR saw some of the biggest revenue gains from the Iraq war. It was No. 37 on the Defense Department's top-100 list of military contractors in 2002. By 2006, KBR had climbed to No. 6.

At the time of publication, Michael Brush did not own or control shares of companies mentioned in this column.