Defense contractor L-3 announced that net sales in its Government Services unit for the last quarter of 2006 increased by 11.1% over 2005. This growth was mostly due to contracts supporting the global war on terrorism; training and leadership development services for the Iraq and Afghanistan governments’ ministries of defense; communication software support, systems engineering, and other technical services to support U.S. Army communications and surveillance activities; and L-3’s linguist contract with the U.S. Army’s Intelligence and Security Command (INSCOM).

There’s the rub. That linguist contract generated sales of US$155.9 million in Q4-2006 and over US$600 million throughout the year, representing the company’s largest contract in terms of annual sales. However, INSCOM did not select L-3 for the 5-year Translation and Interpretation Management Services (TIMS) contract to provide translators and linguists to support U.S. military operations in Iraq. The company has filed a protest with the U.S. Government Accountability Office (GAO), hoping to get some of that money flowing its way.

• Challenges: If L-3 loses its appeal, it will probably be completely out of the language business. If it wins, it might have to learn to get into the commercial market to offset the 4% margins from government contracts.

• Opportunity: L-3 learned how to manage large contracts with very low margins. It wouldn’t be a bad idea to invest some of its pocket change to invest in some translation companies and potentially make the same profit with much smaller revenues.