Right now in Iraq…

Thousands of U.S. soldiers are wearing Danner Desert Acadia Boots made by the Danner Shoe Manufacturing Company in Portland.

In their pockets many of them carry Benchmade knives, made in Oregon City.

Their guns are equipped with Lasergrips laser sight systems made by Crimson Trace in Beaverton.

Their helmets are safer and more comfortable because of a set of pads made by Oregon Aero in Scappoose.

The Humvees they drive are made stronger and safer by products from Armor Systems International in Vancouver and Miles Fiberglass in Oregon City.

If they are injured, medical products from HemCon in Portland and SAM Medical in Newport help save their lives.

Every day these companies and many others make an impact on the lives of our troops. They also make an impact back in the Northwest by creating jobs and contributing to the region’s economy. Despite their efforts however, Oregon ranks 50th out of 51 states (including the District of Columbia) in defense spending per capita. Idaho ranks 51st.

“The good thing about being ranked 50th is that there really isn’t anywhere to go but up,” says John Bannister, executive director of the Pacific Northwest Defense Coalition (PNDC).

The PNDC was formed last year with an aim to grow the region’s defense industry. Its membership includes a partial list of the region’s defense companies and some who are interested in breaking into the field. Because defense procurement is not allowed outside the United States, defense contracts have appeal to companies that are losing money to off-shore firms, Bannister says.

Last year the Department of Defense budget was $530 billion, and it is only expected to increase in the near future.

Lori Miles-Luchak, president of Miles Fiberglass, joined the PNDC with the goal of moving her company into the world of defense contracts. “We made a strategic decision to diversify into government contracts,” Miles-Luchak says. “We joined the PNDC with the hope of partnering with other companies and to learn how to get into government contracts.” Miles-Luchak attended the first meeting of the PNDC and became the organization’s treasurer that very night.

Since then, Miles Fiberglass has partnered with another PNDC member, Capitol Projects of Tualatin, to create reinforcement kits for Humvee hoods. “Lawrence Howard at Capital Projects found the problem, and we came up with the solution,” Miles-Luchak says.

Humvee hoods needed to be reinforced to allow soldiers to stand on them to erect camouflage netting and to survey the surrounding area from a high vantage point. Without the fiberglass kit, the hoods cracked. The kits also make the hoods sturdy enough to sleep on. “Sometimes they are the warmest spot on a cold night,” Miles-Luchak adds.

Helping companies partner was one of the goals that Shelly Parini, business and economic development manager for Clackamas County, had in mind when she founded the non-profit PNDC last year under the umbrella of the Oregon Science and Technology Partnership.

“We were finding all these companies who were doing defense work who didn’t know each other,” Parini says. “They were neighbors for 30 years and they didn’t know the others existed. There were companies from all levels and they were all saying the same thing. ‘We’re lonely; let’s work together and reap the benefits of networking.’”

Parini enlisted Barry Hendrix, chairman of OECO, a Milwaukie-based defense contractor, one of Oregon’s largest, to help her start the group.

“We need to bring more defense spending to Oregon and to grow more primes (major direct defense contractors),” Parini says. “These companies are learning that none of them can work in isolation.”

Oregon’s strength lies in its smaller companies, Parini says. Smaller companies are more flexible and can partner to create products that add value for soldiers but also have potential to spin off commercially. “That way it’s a mutual win for the taxpayers and the military,” she says.

In 2001, Portland’s HemCon developed a hemostatic bandage made from crushed shrimp shells designed to assist in the rapid control of bleeding. The bandage received clearance from the Food and Drug Administration in a record time of 48 hours and was soon in use and being dropped out of planes in Iraq.

In 2003, HemCon was awarded a $6 million Department of Defense appropriation to expand its facility and increase its production. The newly expanded facility—quadrupled in size—was completed last summer and will allow HemCon to provide its product to the military, allied partners and the civilian market, says Staci McAdams, vice president of marketing for HemCon. “This is our first product of many,” she says. “We’re developing a next generation dressing that is a gauze-like product that can be used for deep, penetrating injuries.”

HemCon has grown from 10 employees in 2002 to 22 in 2003 and 51 at the end of 2005. There are plans to have 65-70 employees by the end of the year, McAdams says. “Even then we won’t be at full capacity. We could run three shifts.”

HemCon is currently busy fulfilling the Army Surgeon General’s mandate that every soldier in harm’s way should carry one HemCon bandage, every combat lifesaver should carry three HemCon bandages, and every medic should carry five. Last year, HemCon received $19.2 million in grants and Pentagon funding.

However, even with large contracts such as those with HemCon, Oregon’s total defense spending at $151 per resident still comes nowhere close to that of Washington, D.C., at $5,858 or Virginia at $3,181 per resident.

Oregon’s struggle to lure defense work has to do with the absence of two key components, according to Bannister. “One, we don’t have a major military base and that results in big dollars. Two, we don’t have a major prime—like Boeing, Raytheon or Lockheed—that gets a direct order from the federal government.”

Many of the companies in Oregon doing defense work are subcontractors, such as Precision Castparts in Portland.

“Precision Castparts is a good example of our situation,” Bannister says. “They do a lot of defense work but they are a subcontractor—they supply to primes. If GE gets a fighter engine product from them, we don’t see it in the statistics. So the situation really isn’t as bad as it sounds.”

One company that does impact Oregon’s statistics is Flir Systems Inc. Military contracts consist of 20-25 percent of the company’s business which is projected to be $590-$600 million this year. The Wilsonville-based company creates thermal imaging and stabilized camera systems for the military.

However, most of Oregon’s defense contractors are small- to medium-sized companies that do civilian as well as defense work.

Oregon Freeze Dry, based in Albany, does the majority of its business with commercial clients.

“Most of our business is not military,” says John Ostrin, government sales manager for Oregon Freeze Dry. “Only a small percentage is military, but that is how we want it. That way we can deal with surge capacity when they need more product.” Oregon Freeze Dry produces components of Meals Ready to Eat (MREs) as well as “B” level rations—those that need preparation and a cook.

Ostrin says that having only a small percentage of their business devoted to military contracts is best for them as well as for the military. Since the company isn’t fully supported by the military, it will still thrive even when they have low demand, and it will be able to increase production when needed, he says.

The Army recently approved new rations, and Oregon Freeze Dry is currently preparing to ship freeze-dried eggs for the first time.

“There are no good breakfasts,” Ostrin says. “These will come in a bag and you just add water. The Army will primarily use them as liquid eggs on a griddle, but the Marines will boil them in a bag on the backs of their Humvees.”

Columbia Helicopters also attributes only a small percentage of its business to defense contracts but hopes to increase that number in the future.

“Right now defense contracts have not been a large percentage, maybe only 3-4 percent, but we hope to build it to 20 percent,” says Jon Lazzaretti, vice president of marketing for Columbia Helicopters.

The Aurora-based company is working to parlay its years of expertise in flying and maintenance of Chinook helicopters into contracts with the Army to maintain the workhorse aircraft.

The company is in the preliminary verification stage of a contract to do component overhaul and repair for the Army’s training Chinooks at Fort Rutger, Ala., Lazzaretti says.

“We aspire to do more,” he says. “It will be a couple of years, but things are starting to come in, and we are hopeful that we’ll be able to do some good.”

Oregon’s elected officials are also helping put the state on the defense-spending map. Streamlining the process is especially important for newcomers. However, neither of Oregon’s senators are members of the important appropriations committees that make the spending decisions.

“Honestly, if your state has a member of the appropriations committee it can weigh heavily in your favor for future defense contracts,” Bannister says. “As we recruit support in our Congressional delegation we are trying to increase awareness about the importance of defense spending.”

Washington’s delegation has members on both the House and Senate appropriations committees. Vancouver-based Armor Systems International developed a sealant to protect fuel tankers from leaking when they are hit by enemy fire. The company was awarded an $11 million subcontract last year when in-house inventor Jim Henry came up with the concept that armor was needed to protect people, but for tankers, leakage was the problem, says CEO Terry Billedeaux.

“Insurgents hide behind a palm tree and do something called spray and prey,” Billedeaux explains. “They shoot the tanker and it starts to lose fuel, and as it’s leaking it’s becoming ‘road spray.’ When the fuel becomes a mist, it becomes combustible. So the convoy goes down the road a bit and the insurgents send out a fireball, and there is a huge explosion and we lose a couple of vehicles, possibly personnel.”

“From concept to contract it only took three months,” he says. “Nothing ever goes through that fast in the military.”

Henry’s invention, the TankSkin, or FTSS as the military calls it, is a self-sealing ballistic protection without the weight of armor. Before this $11 million contract for TankSkin, ASI’s largest contract was for $400,000.

“There are a lot of unique products invented out here but because the prime often takes credit, no one knows they are from the Northwest,” Billedeaux says.

At this point, a little over a year after its inception, the PNDC has 53 members that represent over 14,000 employees. Two of those members, Freightliner and Precision Castparts, account for about 6,000 employees. The rest are firms with 20-500 employees.

“Most of our members don’t have the resources to go after more defense work; it’s a long and torturous route,” Bannister says. “We hope that we help with that through our meetings and training workshops. Our goal is to try to help increase businesses doing defense work and to improve their efficiency or reduce costs by helping them work together. And there is nowhere to go but up.”

BrainstormNW - April 2006