(Clarifies para 18 is about a former Halliburton subsidiary)

* Only a bit of promised $1.4 billion has been delivered

* Economy leaves U.S. security companies anxious for work

* 30 to 40 U.S. companies to benefit

By Mica Rosenberg

MEXICO CITY, July 16 (Reuters) - As Mexico battles to keep a lid on raging drug murders, American companies are vying for millions of dollars worth of contracts for military equipment and training under a long-promised U.S aid package.

Private U.S. security firms will get the bulk of a $1.4 billion package pledged by the United States in 2007 to help its southern neighbor crush rampant drug gang violence. Only a fraction of the aid has been delivered so far.

Almost all of an initial $400 million tranche approved by the U.S. Congress in 2008 and being released bit by bit to buy helicopters and inspection gear and train Mexican police will be doled out to 30 or 40 U.S. companies, said an official at the U.S. embassy in Mexico City, asking not to be named.

The state-of-the art equipment, promised by former President George W. Bush at a meeting with President Felipe Calderon in the colonial city of Merida, is badly needed in Mexico as the death toll from a 2 1/2-year drug war tops 12,800.

"We would love to get in on some of that Merida money," said Scott Newman, an executive from Texas firm Texcalibur, which specializes in bulletproofing cars used in war zones.

"You see these trucks that aren't armored and they've got the Mexican police in the back holding on to roll bars. They are exposed. The narcos have bigger more powerful weapons and they just spray them with bullets," said Newman, whose firm recently attended a security fair in Mexico to hawk its wares.

The Mexican government has welcomed the so-called "Merida Initiative" and a promise by President Barack Obama to try to stem the smuggling of U.S. guns to Mexico but is not holding its breath for the gear to arrive.

Calderon has poured some $7 billion into a high-stakes army crackdown on drug cartels but his security forces struggle to match the clout of powerful gangs that shunt $40 billion worth of drugs across the U.S. border each year and smuggle back sophisticated weaponry and technology.

The deployment of thousands of troops since Calderon took office in late 2006 has stoked fresh turf wars between rival gangs. Hitmen often shoot their victims at close range, behead them or slowly torture them to death in cartel safe houses.

U.S. COMPANIES TOUT MIDEAST EXPERIENCE

Many U.S. security companies that supported anti-drug operations in Colombia or worked in Middle Eastern or African conflict zones say they have the expertise to help Mexico.

Hurt by the economic downturn, dozens are queuing up for Merida contracts, the U.S. Embassy official told Reuters.

Meanwhile, delays due in part to concerns in the U.S. Congress about possible human rights abuses by Mexican troops and in part to complicated contracting requirements spread across various U.S. agencies mean very little of the equipment promised under the Merida plan has actually arrived.

Some expect what is eventually delivered may look like less than the $1.4 billion promised to Mexico and Central America.

"I have heard Mexican authorities say the amounts awarded under Merida are false because such a large percentage stays in U.S. hands, in salaries and contracts and a lot of spending on bureaucracy," said Mexican security analyst Raul Benitez.

The economic downturn prompted the U.S. Congress to reduce the 2009 tranche of the Merida plan by 30 percent, approving just $300 million this year just as drug killings in Mexico are skyrocketing to unprecedented levels.

Five Bell <TXT.N> helicopters that cost more than $50 million are the first major batch of equipment to be bought under the package but they have yet to land in Mexico.

Other big contracts will go to scanners to detect traces of drugs, secure communications systems and forensic tools.

A growing trend toward military outsourcing by the U.S. government has come under scrutiny in Iraq after Blackwater security guards were accused of killing civilians and a former Halliburton subsidiary allegedly overcharged by millions.

Some of the largest private security firms like Dyncorp <DCP.N>, Northrop Grumman Corp <NOC.N> and Blackwater, which has changed its name to Xe Services, declined to say if they were bidding on Merida contracts for equipment or training.

The Mexican government is being picky about contractors, carefully checking their reputations. "There is a sensitivity on (their) part about Merida looking like Iraq, Afghanistan, or Colombia," the U.S. embassy official said.

U.S. Democratic congresswoman Jan Schakowsky has raised concerns about using private contractors in the drug war abroad, saying monitoring their activities can be difficult.

"When they wear the badge of the United States there is a very clear chain of command and very clear rules," she told Reuters. "These contractors tend to be very much independent operators." (Editing by Bill Trott)

AlertNet news is provided by