Will Russia Save the Defense Industry?

As Carl von Clausewitz said, "War is the continuation of politics by other means." But today, the pertinent question is what effect the preparation for war has on investing. We recently learned that France has agreed to build and sell to Russia a pair of Mistral-class amphibious assault warships. And this could be only the beginning of a beautiful friendship: French President Sarkozy says he may later sell Russia two more of these weighty warships.

Displacing 16,500 tons each, two Mistral-class ships are respectively the second- and third-largest vessels in the French Navy, lagging only the country's nuclear aircraft carrier, the Charles de Gaulle. Each Mistral can carry up to a 40 tanks, 16 helicopters, and 900 assault troops -- or a combination of the three. To put this size in context, Russia is said to have deployed about 150 tanks in the 2008 Georgian war. Four Mistral-class carriers would suffice to deliver that punch to any country with a shoreline.

Making this sale would be right in character for the French, who've been angling to expand participation in international arms markets, negotiating quid pro quos with Embraer (NYSE: ERJ  ) to help land a fighter jet contract for Dassault -- right from under Boeing's (NYSE: BA  ) nosecone. But not everyone's cheering France's success. U.S. officials question the wisdom of the move. And with the example of Georgia fresh in their minds, seaside Lithuania and Latvia are rightly nervous about Russia's sudden interest in gaining an amphibious warfare capability.

Buy the trend
But they'd better get used to it. As I've been saying for months, cutbacks in defense spending by both the U.S. and Europe are creating a global vacuum in the ability to perform necessary military tasks. Nature abhors a vacuum, and Russia and China, to name two, are stepping in to fill that gap.

And I say, "Great!" At least someone is still buying weapons systems. Maybe the U.S. can't condone sales to Russia and China, per se. But the road to a more multilateral world arguably paved the way for what could be the defense industry's biggest international sale ever this year -- a deal to sell Boeing F-15s and United Technology (NYSE: UTX  ) Black Hawks to Saudi Arabia. That sale could yield tens of billions in revenue for Lockheed Martin (NYSE: LMT  ) , General Dynamics (NYSE: GD  ) , and Raytheon (NYSE: RTN  ) as well.

That's small consolation to Latvia and Lithuania, I'm sure. But for investors, at least, there's an upside.

That's my read on the trend, at least. What's yours? Tell us about it below.

Embraer is a Motley Fool Stock Advisor recommendation, but Fool contributor Rich Smith owns no shares of any company named above. Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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