Pentagon Watch: Where Did Your Tax Dollars Go This Week?

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, it ranks among the most "open" of our government agencies. The Department of Defense is positively sunshine-y in the frequency and clarity with which it describes the contracts it issues to private companies, updating them daily on its website.

 So what has the Pentagon been up to this week?

The Department of Defense requested $614 billion in total funding for the current fiscal year 2013. Spread over 52 weeks, that works out to $11.8 billion in spending. And with about 47% of that money, historically, going to personnel costs, that leaves about $6.2 billion a week to spend on military hardware (planes, trains, and main battle tanks), infrastructure projects (such as resiting a VA hospital, dredging a river, or constructing an air base), services (engineering and software design work), and military supplies.

Last week, the Pentagon awarded contracts worth a combined $6.226 billion -- putting it right on target to spend all the money it's been allotted for this fiscal year, "sequester" notwithstanding. Where did the money go?

To Russia with cash
Well, probably the biggest news of the week, and certainly the most controversial, was a contact issued Monday to pay a Russian defense contractor, Rosoboronexport, $572.2 million (later revised down to $553.8 million) for 30 Russian Mi-17 transport helicopters -- that we will promptly hand over to the Afghan National Securities Forces. This follows on a decision one week earlier to hand a Brazilian company, Embraer (NYSE: ERJ  ) a $1 billion contract to build fighter planes for the Afghan Air Force.

Afghan military Mi-17 helicopters in flight. Source: Wikimedia Commons.

In one respect, therefore, it appears that sequestration of defense spending may be having an effect on U.S. defense contractors -- it's forcing the Pentagon to be more careful about how it spends its cash, and to give more business to low-cost defense contractors from other countries.

Nor is the Pentagon the only actor pinching its pennies. Last week, Boeing (NYSE: BA  ) also headed to Brazil to sign a deal cooperating with Embraer on the global marketing of the latter's KC-390 aerial refueling tanker.

Heavily into helicopters ...
Boeing also made news this week when it landed its second multibillion-dollar contract in as many weeks, for the sale of Chinook heavy lift helicopters. Two weeks ago, the U.S. Army ordered up $4 billion worth of the whirlybirds. This week, Boeing won a $3.4 billion contract to sell more Chinooks to the militaries of Turkey and the United Arab Emirates, with the U.S. government acting as the middleman.

U.S. Army CH-47 Chinook. Source: Wikimedia Commons.

... and softly into software
Another big winner for the week was Microsoft (NASDAQ: MSFT  ) . The Pentagon granted Mr. Softy a contract worth up to $412.2 million for Microsoft Blue Badge cardholder support. This contract, whereby Microsoft will assist the Defense Information Technology Contracting Organization with software design work, costs a lot -- in part because Microsoft is being asked to license access to its proprietary source code as part of the work.

Galaxy still flying
A smaller contract win, but still significant, was Lockheed Martin's (NYSE: LMT  ) receipt of a $27.9 million indefinite-delivery/indefinite-quantity contract to do software work upon Air Force C-5 Galaxy transport aircraft. The Pentagon has caught some flak over continued support for the Galaxy, whose basic design is now close to 45 years old. But the Galaxy remains the largest transport aircraft in the U.S. fleet, capable of carrying a half-dozen MRAPs, or five combat helicopters within its capacious cargo hold.

U.S. Air Force C-5 Galaxy hold. Source: Wikimedia Commons.

The Air Force is currently in the process of upgrading more than four dozen Galaxies under a comprehensive Reliability Enhancement and Re-engining Program. Once completed, the planes will be dubbed "Super Galaxies" -- C-5Ms, equipped with more power, a faster rate of climb, and the ability to operate off of runways 30% shorter than their predecessors require.

Opportunities on the horizon
That's about it for the highlights of last week's Pentagon contracting news, but now what should we be on the lookout for in the future? Well, probably the most interesting bit of news on that front was the announcement Thursday that the U.S. Defense Security Cooperation Agency has informed Congress of plans to sell $4 billion worth of services and equipment to the government of Saudi Arabia, as part of a plan to modernize the Saudi Arabian National Guard forces.

The contractor in charge of the project, Vinell Arabia, isn't exactly a household name here. But as it turns out, Vinell is a subsidiary of marquee defense contractor Northrop Grumman (NYSE: NOC  ) .

The upshot: Northrop Grumman's about to land a contract worth 16% of its annual revenue haul for a whole year. The contract hasn't been announced yet. No one knows about it -- except that now, you do.

Boeing operates as a major player in a multitrillion-dollar defense market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. The Fool's premium research report on the company provides investors with the must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2013, at 10:45 AM, Hollymachro wrote:

    The theory is, spend the money, or lose it.

    The defense department like any other government agency, spends all the money in their budget

    Otherwise there will be no justification for next year to ask the same or more amounts. So why to ask

    For money if you don’t need it? Well its power, the bigger your budget, the more power the department have. Notice! They spent little over the weekly budget. This applies to all Government agencies’.

    The sad part in this case besides wasting tax payer’s money is, giving it away to other countries.

    The Congress should put a stop to all the Government waste and lower our taxes.

    It’s your Money, stand up and speak.

  • Report this Comment On June 23, 2013, at 3:35 PM, Itsjustmeagain wrote:

    What I don't understand is why buy Russian and Brazil?

    If we bought US and gave it to them, we could recover some in taxes and jobs.

    The Camp David Accord between Egypt and Israel provided millions yearly to each country, but they had to buy US.

  • Report this Comment On June 23, 2013, at 3:48 PM, gimmethefacts wrote:

    Does anyone but me see the ludicrousness of this article about where 'Our American Taxes' are going this week? Pentagon budget of let's just round it off to $1.5 billion contracts that benefit Russia, Brazil and least of all Afghanistan there is not a dime in their that says America will be safe from the Pentagon spending. This just boils my blood, I say stop the damn war budget that does not take care of Americans and really does nothing to protect the U.S and let's start taking care of America!!! This war machine needs to wind down and yet they just keep America in fear so the powers that be and all their crony big corporations can make money off of the working class tax payers. I have absolutely nothing more to give and remain broke because of Congresses lackadaisical funding for our needs and this military budget that does not and never has protected, 'We the People'! The world is no better off for America trying to play policeman, in fact it seems like a powder keg on the brink while most Americans are barely surviving to live.

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