Defense News Roundup: Apaches for South Korea, Cluster Bombs for Saudi Arabia

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.

So what has the Pentagon been up to this week?

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). The generals have focused less on wallet-opening lately, though, and more on belt-tightening. Last week was no exception, with the Pentagon awarding just over $4.41 billion to defense contractors. Among the winners:

Boeing (NYSE: BA  )
Defense contractors as a whole may lament the lack of spending at the Pentagon last week -- but a few companies still made out like Beltway bandits. One of the biggest awards of the week went to Boeing, which on Friday received confirmation that it's won the contract to sell South Korea three dozen of its AH-64E Apache attack helicopters.


Apache Longbow in flight. Source: Boeing.

The exact value of Boeing's contract remains a mystery, with some sources saying South Korea will pay $1.6 billion for the whirlybirds, others saying only $904 million (the value the Pentagon quoted Friday). Either way, it's a big number, and one of the biggest government contracts won by anyone last week. (To give credit where it's due, SAIC (NYSE: SAI  ) won a medical and health services contract twice as big as Boeing's -- but that one came direct from NASA, not the Pentagon.)

General Dynamics (NYSE: GD  )
Not quite as big as the Boeing win, but still good enough for government work, was the big Special Ops contract that General Dynamics secured Thursday. This $562 million deal will pay the General to build a fleet of GMV 1.1 advanced Ground Mobility Vehicles for U.S. Special Operations Command. Essentially souped-up Humvees, the GMV is specially designed for use by SOCOM troops, boasting improved ground clearance, a beefed-up suspension, and a bigger engine, and can be airlifted to hot zones aboard a Boeing Chinook.

Textron (NYSE: TXT  )
A third megacontract -- and probably the most controversial of the three -- went to Textron, which has been awarded $641 million to produce 1,300 cluster bomb munitions for the U.S. Air Force and Saudi Arabia. Roundly criticized internationally for their outsized ratio of civilian-to-combatant casualties, cluster bombs have been outlawed by 83 nations that signed the 2008 Convention on Cluster Munitions.

Neither the United States nor Saudi Arabia was a signatory, however -- and their reluctance to apply their John Hancocks just netted Textron a contract worth 5% of all the revenues it ordinarily books in a year.

Northrop Grumman (NYSE: NOC  )
In small but significant contract news, Northrop Grumman won a $28 million contract Wednesday, extending the period in which it will support use of "BAMS-D" modified Global Hawk drones by the U.S. Navy. These drones, being used as test subjects for Northrop's new MQ-4C Triton Broad Area Maritime Surveillance plane, are currently overflying the Middle East. While in service, they provide the Navy with a strong aerial surveillance capability, and simultaneously allow Northrop to test the modified planes' performance, to better tweak its Triton before that plane goes into operation.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's move on to a contract that may not yet be incorporated into defense contractors' stock prices.

Late last week -- Friday, in fact -- we learned that the U.S. Defense Security Cooperation Agency has asked Congress to approve a $1.2 billion sale of airplane parts and services to the Royal Saudi Air Force. DSCA was excruciatingly vague about the precise planes that the Saudis want upgraded. But the sheer size of the deal suggests there may be many defense contractors who benefit. To name just a few likely suspects, both Boeing and Northrop have planes in service in the RSAF -- as does Lockheed Martin.

Which of these companies will benefit from this extra $1.2 billion in funding? It's hard to say. But at least now you know that this money is out there -- and that alone puts you a step ahead of the folks on Wall Street.

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7/28/2014 4:04 PM
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