India's in an Uproar Over This $1 Billion Contract With Lockheed Martin

A look into why this kerfuffle over Lockheed's transports has arisen, why Boeing defense contracts have been moved to the back of the line -- and why for Boeing, that may be not as bad as it sounds.

Jan 5, 2014 at 11:15AM

When India confirmed this week that it plans to order six more C-130J Hercules transport aircraft for its air force, Lockheed Martin (NYSE:LMT) investors in America were thrilled. Over in India, however, the reaction can be summed up in one word: shock.

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Lockheed's C-130J is one heck of an impressive cargo hauler. Source: Wikimedia Commons.

That's how DefenseNews.com describes it, at least, saying Indian Army and Air Force officials have been taken aback by the government's decision to advance a transports purchase when the country's more pressing needs are for fighter jets, attack helicopters, and ground artillery. 

Mind you, no one's arguing the C-130 is a bad airplane. To the contrary, Lockheed's C-130 is the most popular military transport on the planet. But even so, it's not like India suffers from a lack of transports.

The country already spent $962 million to buy six C-130Js back in 2007. Four years later, India placed an order for 10 of Boeing's (NYSE:BA) giant C-17 transports in a deal that some analysts value as high as $4.5 billion. And that's on top of an air force that already boasts some 96 An-32s and 58 Hawker Siddeley HS 748s (each capable of carrying about 50 passengers), plus 17 monstrous Il-76 airlifters (each capable of airlifting a T-72 heavy tank into battle). Apples to apples, the Indian air force already heavily outweighs that of chief rival Pakistan.

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Each of India's Il-76s can lift a T-72 into combat. Source: Wikimedia Commons.

A full shopping list
Meanwhile, with India (like most countries) having only limited funds available to spend on defense, critics of the C-130J deal argue that the country really needs to prioritize. According to DefenseNews.com, India has $4 billion worth of high-priority defense projects in the pipeline, awaiting finalization over just the next few months -- and $40 billion in projects farther down the pike.

For example, the Indian army is pushing to finalize a purchase of 145 M777 howitzers from BAE Systems (NASDAQOTH:BAESY) -- a deal that could be finalized at a cost of only about $101.5 million once they get around to hammering out the details. More significant purchases are expected from Boeing, which at last report was negotiating sales to India of:

  • 22 AH-64 Apache attack helicopters
  • 15 CH-47 Chinooks
  • Four P-8I maritime patrol aircraft

Combined, these arms sales could generate as much as $1.7 billion for Boeing. But instead of getting the details firmed up and the contracts signed, India has pushed the deal for Lockheed's planes to the head of the line.

Good news for Lockheed? Great news for Boeing!
The news isn't all bad for Boeing, however. You see, India's intention to buy the C-130s was first reported back in September. Back then, word also had it that New Delhi wanted to buy another six C-17s from Boeing. None of this had been confirmed at that time, however.

Now that the C-130J rumor has turned out to be true, maybe it's also true that India will sign a C-17 purchase agreement with Boeing. That could yield yet another $2.7 billion for Boeing -- bringing the company's potential revenue haul from the subcontinent to a whopping $4.4 billion.

Lockheed's $1 billion win may be only a prelude to an even bigger contract win for Boeing.

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Could Lockheed's C-130 win pave the way for Boeing to land an even bigger C-17 sale? Source: Wikimedia Commons.

 

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Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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