Pentagon Pinches Pennies

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). But as you may recall, the Pentagon went a wee bit over budget a couple of weeks back. It's been on a financial diet ever since, and last week, ir spent less than $1.5 billion.

That works out to a bit less than $0.25 on the department's budgeted defense-spending dollar -- making last week's actions literally "two-bit." Yet there was still some news of note.

Raytheon's jam session
Right out of the gate, Raytheon (NYSE: RTN  ) won one of the week's biggest contracts Monday. Valued at $279 million, its deal to help develop a Next Generation Jammer, or NGJ, for the U.S. Navy accounted for nearly 20% of the funds awarded last week. Over the next 22 months, Raytheon will work to develop a new electronic warfare system offering "significantly improved airborne electronic attack capabilities against advanced threats."

Once ready for market, NGJ will replace the ALQ-99 tactical jamming system now in use aboard Boeing EA-18G Growler and Northrop Grumman EA-6B Prowler electronic warfare aircraft.

Oh, great. Now Count Dracula has missiles.
Half as large in dollar value, but infinitely bigger in political controversy, is America's plan to build an Aegis Ashore Missile Defense System to defend against Iranian ballistic missiles. The base is going up near the village of Deveselu, Romania -- about 125 miles southwest of Count Dracula's Transylvanian castle.

Raytheon's rockets will be deployed to defend the base, while Lockheed Martin (NYSE: LMT  ) is managing the overall project. And last week, we found out who will build it, when government contractor KBR (NYSE: KBR  ) was awarded $134 million to turn the 430-acre site into a missile base.


Screen shot from Atari's Missile Command. Source: Wikipedia.

Opportunities on the horizon
That was about it for contracts of significant size awarded last week. Sure, there were other awards: $13 million for Lockheed to repair some helicopters here, $8 million for Exelis (NYSE: XLS  ) to deliver some spare parts there. But really, the more interesting news last week concerned future contract wins -- and because those aren't "news" yet, they've received much less attention in the media and offer more potential for profit for investors.

So let's turn our attention now to Congress, where the Defense Security Cooperation Agency has filed two notifications in the past five days, regarding foreign military sales contracts that may soon be concluded. The biggest request by dollar value this past week came on Tuesday, when DSCA sought a Congressional OK for the sale of $1.2 billion worth of Mark V patrol boats to the Saudi Arabian military. No primary contractor was named in that notice, however.

As a result, it seems United Technologies (NYSE: UTX  ) is the bigger opportunity here. DSCA is seeking permission from Congress to sell Greece $250 million worth of engine spare parts for its F-16 fleet. The parts will be used to maintain the UTC-built F100-PW-229 engines that power the fleet.


Lockheed Martin F-16. Source: Wikimedia Commons.

Mind you, no contract has yet been signed on this deal. It hasn't been officially announced yet, and most investors aren't factoring it into their valuations of United Tech. No one knows about it -- except that now, you do.

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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 July 14, 2013, at 10:45 AM, gistanleyjr wrote:

    Mind you not Mine you

  • Report this Comment On July 14, 2013, at 1:46 PM, jlwlliams wrote:

    Created last week is a petition at http://wh.gov/la!y7 calling for an audit of the DOD.

    It is imperative the DOD begins to micro manage monies. At a time when congress is unclear about funding necessities for US citizens, it is more important than ever to micro manage fraud, waste and abuse.

  • Report this Comment On July 15, 2013, at 7:59 PM, cnyap wrote:

    Citizens don't benefit from having a strong defense? Ask families of those who died on 9/11 whether they are happy Clinton cut the intelligence budget and let Al-Quada attack us for 8 years.

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