Why Would America Sell Saudi Arabia 15,699 Dangerous Missiles? Now We Know.

Foes "TOW" the line when faced with Raytheon's missiles. Photo: U.S. Army

Two months ago, we told you about an astoundingly large contract that America's Defense Security Cooperation Agency, or DSCA, was negotiating with the Government of Saudi Arabia. For a purchase price of roughly $1 billion, Raytheon (NYSE: RTN  ) would produce and ship to Saudi a total of more than 15,000 anti-tank rockets, or more specifically:

  • 9,650 BGM-71 2A Tube-launched, Optically tracked Wire-guided (TOW) Radio-Frequency (RF) missiles.
  • 4,145 BGM-71 2B TOW Aero RF missiles.
  • 1,000 BGM-71 2A TOW missiles.
  • 750 BGM-71 2B TOW missiles.
  • An assortment of 154 "fly to-buy" TOW2B and TOW2A missiles.

The question we asked then was what, precisely, the Royal Saudi Land Force planned to do with all of these missiles. And now we think we know. They're going to load them onto thousands of new light armored vehicles manufactured by another defense contractor entirely: General Dynamics' (NYSE: GD  ) Canadian subsidiary, General Dynamics Land Systems-Canada.

On Friday, you see, Canada's Ministry of Foreign Affairs, Trade, and Development announced what it called an "historic" deal to sell up to $13 billion worth of light armored vehicles to Saudi Arabia. The specific model of light armored vehicle has not been revealed, but odds are it is some variant of GDLS's LAV-25 or LAV III combat vehicles -- both 8x8 wheeled, not tracked, armored vehicles suitable for desert warfare in the Gulf region.

GDLS's LAV-25, on patrol. Photo: US Marine Corps

In 2011, DSCA brokered a deal to have GDLS-Canada sell 82 LAV-class light armored vehicles to Saudi Arabia for a total purchase price of $350 million -- or approximately $4.3 million per vehicle. Friday's Canadian announcement, therefore, at $13 billion in potential value, suggests that the latest Saudi purchase could exceed 3,000 armored vehicles in size. GDLS's LAV vehicles are capable of carrying TOW armaments, and would be logical choices to carry the 15,000-plus TOW missiles that Raytheon is selling to the Saudis. And with 3,000 vehicles to work with, the Saudis will have plenty of carriers for their new missiles.

What it means for investors
So far, all of the above is just educated guesswork as to which missiles the Saudis will pair with which delivery systems. But here are a few cold, hard facts you can count on: December's $1 billion arms deal amounts to more than 4% of Raytheon's annual revenues -- for just one contract. This week's bigger, $13 billion contract is big enough to cover five full months of work for General Dynamics.

And these are only the tip of the iceberg (so to speak). Just a few years ago, Saudi Arabia negotiated an arms package with Washington that promises to be the biggest foreign weapons deal in American history -- as much as $90 billion in value. In short, the Middle East in general, and Saudi Arabia in particular are turning into a gigantic export market for U.S. defense contractors. Any defense contractor that doesn't grab a piece of this market is missing out on a bonanza.

Fire one TOW, buy a replacement. Every one you shoot means more money for Raytheon. Photo: U.S. Army

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Read/Post Comments (18) | Recommend This Article (24)

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 February 15, 2014, at 4:11 PM, OldSkewel wrote:

    The one thing that America absolutely MUST start considering is the question of who is likely to fall under the crosshairs of these weapons in the near future(?) To go around selling western technology to people who very well could be our enemies in the very near future is highly irresponsible just shy of treason in my book. So, who is likely to be Saudi Arabia's target? An elementary grade school child could answer that. History tells us Israel. Profiteering off of blood is reprehensible and despicable. Our Forefathers would be pounding their breast and grinding their teeth in anguish as this is exactly what they fought AGAINST.

  • Report this Comment On February 15, 2014, at 5:04 PM, jfelano wrote:

    We also just sold Saudi and UAE 6,000 GBU-39 Bunker Busters.

  • Report this Comment On February 15, 2014, at 5:04 PM, jfelano wrote:

    Iran and Syria are Saudi's only real threats in the regions so figure it out for yourself.

  • Report this Comment On February 15, 2014, at 7:35 PM, archangel3285 wrote:

    A large portion of these missles are headed to element of the FSA in Syria. Training someone to use a TOW is relatively easy and so is the employment. Assads armor has been the bain of the resistence and quality antiarmor munitions have been in short supply.

    The Saudis began taking a more prominent roll after it became clear Obama wasnt going to do anything when Assad crossed that famous "red line". Iran is heavily invested in Assad and Syria. By proxy, the Saudis had to take action to keep the balance of power relatively even.

    Finally, the Saudis have problems of their own with extremists and antigovernment forces inside of SA and Yemen. Plenty places to pump missiles for the near future.

  • Report this Comment On February 15, 2014, at 8:21 PM, PeakOilBill wrote:

    I wouldn't want to be in Israel when the monarchy is overthrown and the Islamists get their hands on all that stuff.

  • Report this Comment On February 15, 2014, at 8:23 PM, roger142 wrote:

    Its about time the Saudi's paid for their own protection, unless they plan on attacking Israel. I couldn't believe it when Sadam H. (Iraq) invaded Kuwait, and the Saudi's just sat back and let America deal with it!

    I also think it is time the Saudi's built their own navy and started protecting their own oil ships in the Persain Gulf and beyond. And maybe for all we have done militarily for them, they might consider buying their ships from American ship yards.

  • Report this Comment On February 15, 2014, at 8:51 PM, ugo wrote:

    At least we are getting 1 billion out of the deal. We give Israel 1 billion plus the weapons.

  • Report this Comment On February 15, 2014, at 9:16 PM, luckyagain wrote:

    Unfortunately, either the US will sell it or someone else will do it. It kind of reminds of the arm dealer prior to WW I. They would sell to anyone for enough profit. History repeating itself?

  • Report this Comment On February 15, 2014, at 9:32 PM, Blessthebeasts wrote:

    When Saudi Arabia uses these weapons that they purchased from the US and Canada against these same countries - I hope Americans use their collective strength to have every congressperson, house representative and DOJ/NSA leader charged with treason and given the death penalty. The Saudi's are not our friends and are probably laughing at the greedy American and Canadian governments who would allow this "deal" to go through knowing full well that they will some day use them against the very people who brokered this deal and their countries. SMH...

  • Report this Comment On February 15, 2014, at 9:46 PM, roxander wrote:

    there is only one way to bust the politicians who are screwing every american who isnt working for this corrupt government we need to hold yearly election on all politicians we dont like what they are doing we vote them out now we don't need to be stuck with crappy bad politicians for 4 or more years if we can do this my fellow Americans we can make this a better place for you and me the people not the politicians and their buddies.

  • Report this Comment On February 15, 2014, at 9:50 PM, roxander wrote:

    these are bad politicians they are anti Americans we need to bust them all .ask anyone what they would think about these fools actions represent and the answer is these politicians are traitors to the american flag and to its people are we going to allow these rotten politicians to steal our country away from us and to tarnish it with their sins and corruption wake up america don't you see these people are bad for you and me .

  • Report this Comment On February 15, 2014, at 10:11 PM, ecurry10 wrote:

    Number 1, we can control them and there PAC weapons and guidance updates. If we know what to expect, well that is 40% of war. If we make money off them deterring there enemies, then yahoo. What else is there to explain. Iran, Syria and other nut job Islamic countries outside of the Communist Korean and other fallen Democracies, too bad they were not Republics, but never more, have defended themselves since WW2. So it shall be.

  • Report this Comment On February 15, 2014, at 10:12 PM, ellaerdos wrote:

    Luckyagain is right, if we don't sell it to the Russians or the Chinese will.

    As for the Israelis, well they have proved they can take care of themselves.

    And for our political hacks, the only way you are going to get rid of them is by ammeding the constitution and having term limits. in both the House and the Senate.

  • Report this Comment On February 15, 2014, at 10:31 PM, volcan357 wrote:

    That is just what we need in the Middle East. A good war between the Sunni and Shiite Muslims. The more they kill each other off the better. And of course the Motley Fool is right. You are very unlikely to lose money if you buy stocks with the defense contractors. The arms business has always been very profitable.

  • Report this Comment On February 15, 2014, at 11:17 PM, deliaf wrote:

    ayatollah obama has done it again! he is the best friend the muslims ever had!

  • Report this Comment On February 16, 2014, at 8:58 AM, ghelmz21 wrote:

    As always it's about global energy! We must be nuts as they will use these arms against us and Israel in a heartbeat. We have absolutely no friends in that region except when we are giving!

  • Report this Comment On February 16, 2014, at 9:26 PM, PaulApp wrote:

    It's not a surprise!

    Its neighbors have threaten Saudi Arabia and it's in short notice to strengthen it arm forces! They should just have bought nuclear bombs instead! Nuke those sons of camel out off the sand!

  • Report this Comment On February 17, 2014, at 12:46 AM, thinkingfarahead wrote:

    What we really need in America is another Revolution.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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