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Will China's New Aircraft Carriers Spark a Multibillion-Dollar Weapons-Buying Bonanza?

China's first aircraft carrier, the Liaoning (PLAN CV-16). Source: Author photo, with credit to Google Earth.

China has an aircraft carrier -- but that's not all it's got.

Last month, we outlined for you China's plans to take its first, experimental aircraft carrier, the Liaoning, and build upon it a new blue water Navy boasting perhaps as many as four separate, full-sized aircraft carriers. It's what the country intends to do with these ships that's making its neighbors nervous.

This week, The Wall Street Journal reported on recent maneuvers by a Chinese "flotilla" consisting of two guided missile destroyers, an amphibious attack ship, and a presumed escort of unseen submarines. Maneuvering south past Vietnam, then circling through the territorial (but still international) waters among several Indonesian islands, east, north of Australia, and finally passing 'round the Philippines (where they conducted live-fire exercises), China gave its neighbors a show of real naval strength. It also set people to thinking: Next time, those could be carrier strike groups cruising off shore...

All of which could of course be completely innocuous. According to statements by the People's Liberation Army Navy, China's fleet spent much of its time on the recent maneuvers engaged in such benign activities as "anti-piracy" and "search-and-rescue" exercises.

And of course, we take them at their word on that. But as a wise man once said...

"Trust, but verify"
Down under in Australia, better safe than sorry is the order of the day. And just to make sure that everything's kosher in the waters surrounding it, the Australian Defence Force confirmed Friday its latest efforts to keep an eye on goings-on. Specifically, Australia has agreed to buy at least eight, and possibly as many as 12, of Boeing's (NYSE: BA  ) P-8A Poseidon maritime surveillance aircraft. This sale will bring Boeing at least $3.6 billion in incremental revenue, and perhaps as much as $5.4 billion if all options are exercised. Australia will use the planes to upgrade an air fleet that currently relies primarily on Cold War-era AP-3C Orions from Lockheed Martin (NYSE: LMT  ) .

Boeing's P-8A Poseidon (left), and the plane it's replacing, a P-3C Orion (right). Photo: Boeing.

Farther down the line, Australia also hopes to purchase multiple Triton long-range patrol drones that Northrop Grumman (NYSE: NOC  ) is developing for the U.S. Navy. The system is not fully operational just yet. But once it is, it might look something like this ...

Northrop Grumman's Global Hawk Maritime Demonstration aircraft. Photo: Northrop Grumman.

... and might cost something on the order of $80 million apiece.

The upshot for investors
I've said it before, and I'll say it again: Australia's rearmament offers one of the best growth markets for defense spending currently available to U.S. defense contractors. Boeing looks ideally positioned to grab a good chunk of the tens of billions of billions dollars that Australia has budgeted for defense spending over the next decade. In addition to the Poseidon sale announced this week, Boeing is in line to win a $1.5 billion contract to sell the Royal Australian Air Force a dozen of Boeing's EA-18G Growler electronic warfare aircraft.

Other winners in the Australian defense market could include Raytheon (NYSE: RTN  ) , now bidding to help build a space "fence" to track orbital debris around the earth, and local defense concern Austal (NASDAQOTH: AUTLY  ) , which is the prime contractor on a fleet of Armidale-class patrol boats that Australia is building.

And then there's Northrop Grumman. As the leader in the field of long-endurance unmanned "drone" aircraft, Northrop has pole position to sell Australia the maritime reconnaissance drones that it will be needing to monitor Chinese maneuvers to the north. Northrop Grumman has also made a series of savvy buys into local defense companies, including its acquisition of the defense business of Qantas airlines -- arguably Australia's best-known company -- last year.

If I had to pick just one company to play this trend, it would be Northrop Grumman.

Flying military kangaroos? Buy, buy, buy! Photo: Wikimedia Commons.

Heads, you win. Kangaroo tails, you don't lose
So Boeing is selling Australia piloted spy planes? And Northrop is selling 'em robotic spy planes? Well, as long as Australia is buying both, then both companies should serve their shareholders admirably! As world-famous investor Warren Buffett tells us, there's no need to go searching for long shots. Pick your best ideas, bet on them big, and ride them to riches -- let other folks worry about the bobbles in the market. That's why our own CEO, nearly as-legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover three companies we love the most. 

Read/Post Comments (14) | Recommend This Article (7)

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 23, 2014, at 11:22 AM, PeakOilBill wrote:

    What idiot didn't buy that junk and destroy it before the Chinese could get their hands on it. Typical US government f up.

  • Report this Comment On February 23, 2014, at 11:50 AM, destroyer33 wrote:

    we should destroy ,sabbatoge there carrier ,carriers.dolphins or underwater scubas attach xplosives to there halls, and somehow sabbatoge there industry, in all honesty ,if i wasnt afraid of water,i would want the job of doing that, china will be our biggest threat later on if we dont do something about it.

  • Report this Comment On February 23, 2014, at 11:51 AM, dryoy wrote:

    sad and Pathetic !?...heee...heee

  • Report this Comment On February 23, 2014, at 12:20 PM, stockingshorts wrote:

    While past and present Congresses and Presidents waffled, China "took the money" and ran right into production of military hardware using the huge profits from FREE TRADE with the idiots in the U.S. and elsewhere. And what the Chinese weren't smart enough to develop on their own, they stole through hacking into U.S. Defense dept. Secretes and the secretes of the Defense Contractors who develop our hardware. It's well known that the Chinese have practically ALL of our secrete Nuclear Bomb technologies.

    While OUR Middle Class continues to suffer under the numb skull decisions wrought by Big Business aided by our law makers, China proliferates at will. One of THE biggest mistakes the U.S. ever made was when Harry Truman fired Doug MacArthur. The rest is history and a poor outcome for us. China and North Korea shouldn't exist in their present forms today.

  • Report this Comment On February 23, 2014, at 12:33 PM, rw93003 wrote:

    Full-sized air craft carriers are on the verge of obsolescence -- Chinese are good at copying but not thinking...

  • Report this Comment On February 23, 2014, at 12:57 PM, metou wrote:

    I think its a big waste of money, cruise missle could take out all from a lessor ship. If your trying to make counties like vietnam nervous its a waste of time. vietnam people are dog fighters , meaning they fight with thier teeth and dont care about the loss of life to them, its an honor to die for mother country. Other countries leraned from them that men and woman all fight, they were doing this in the 1960s and now it catching on here. They fought us in the 60s with aircraft carriers and did that make a difference, heck No so why would it help china. We just trying to get out of it and save face with aircraft carriers and jets etc.. Then brainless China came along in 1974 right after we got out , thinking they could show the USA up and they got into the biggest bloodly mess Vietnam they seen in 200 years with anyone and they were running to get out of it.. Two big powers that never learned a thing, dog fighters dont care what you have for show. or how much you spend.

  • Report this Comment On February 23, 2014, at 1:24 PM, alanzee wrote:

    First's, China want to turn South China sea their own backyard lake that almost the entire south china sea which inconsistent with the International Law of the Sea. 2nd, established ADIZ in East China sea,. And maybe invade Philippines which U.S. and Japan would and maybe other countries would join and resist China 's behavior...There's a price to be paid for China's BRANDING as an International OUTLAW, a country that doesn't respect and comply with International Law....

  • Report this Comment On February 23, 2014, at 1:43 PM, vet212 wrote:

    Yes, to not respond to China and its increasing militancy would very likely be fatal. The question should be with no one threatening it why is China arming itself?

  • Report this Comment On February 23, 2014, at 2:21 PM, jfelano wrote:

    I think Aircraft Carriers are a thing of the past. I mean anyone can build a missile or torpedo that can easily sink one.

  • Report this Comment On February 23, 2014, at 3:02 PM, macarthur1 wrote:

    Don't worry... When the US dollar collapses and goes bankrupt due to Trillions and Trillions of dollars in debt, we will end up taking down the Chinese economy with us.

    China is only prosperous because the US is their #1 customer and source of income.

  • Report this Comment On February 23, 2014, at 4:54 PM, plange01 wrote:

    china is taking over in its role as the new worlds most powerful country followed closely by russia

  • Report this Comment On February 23, 2014, at 7:09 PM, luckyagain wrote:

    "Will China's New Aircraft Carriers Spark a Multibillion-Dollar Weapons-Buying Bonanza?"

    I sure that an arms race can be avoided. Surely wasting billions on weapons is the last thing that the world needs. Unfortunately humans have a skill at doing the wrong thing in spite of the waste. Billions spent on solar energy would be much more helpful to the nations of Asia instead.

  • Report this Comment On February 24, 2014, at 4:16 AM, scoutman wrote:

    chinese are not a warlike people and certainly do not think...out of the box...they will not invade any other country but will likely stand steadfast by their own.the agenda of the govt and its people are not the same.the rich might stay here and live well but the majority are poor and given the chance will run for most foreign countries.problem is most chinese are so closed off from the outside world they have no clue what it is like and are afraid of the unknown.regardless we live in a world of v

  • Report this Comment On February 24, 2014, at 4:17 AM, scoutman wrote:

    iolence and most of us want to be prepared for the unexpected

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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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