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It Took 5 Years, but the President Will Finally Get a New Helicopter

If there's one thing surprising about the Pentagon's decision to spend $1.24 billion on a new helicopter for the president, it's that it took them so long.

President Obama boarding the current Marine One. Source: Wikimedia Commons.

The Pentagon has been talking about the need to develop a next-generation version of "Marine One" for more than five years now. A few times it came close to making a decision -- then backed away. But by last July, the process appeared to be finally winding down, when potential helo-builders Boeing and then, Northrop Grumman as well, confirmed that they would not be bidding on the contract. This left United Technologies' (NYSE: UTX  ) Sikorsky unit, working in cooperation with Lockheed Martin (NYSE: LMT  ) , as the winners by default of the $1.24 billion Marine One presidential helicopter contract.

Mind you, this was 10 months ago, yet it took the Pentagon until last week to make up its mind to give the Marine One contract to the only company that wanted it.

The Marine One contract: What it is
United Technologies' win, announced as the lead item in the Pentagon's daily announcements of contract awards on May 7, awards it the right to begin "engineering and manufacturing development" work on Marine One. Six specially outfitted S-92 helicopters will be built in this initial phase of the contract, with two to be delivered by 2018, and the rest subsequently. "Associated support equipment, integration of mature government-defined mission systems, a training system including a flight training device and a maintenance training device, logistics, engineering, and test and evaluation support" will also be provided.

All of this is provided for in the contract award, which covers work to be performed by United Tech through October 2020.

The Marine One contract: What it is worth
Ultimately, United Technologies is expected to build a total of 21 Marine One helicopters for use by the President, Vice President, and senior executive personnel over the course of the next nine years. As such, United Technologies will retain a half-century-old franchise that Sikorsky has controlled since building the first presidential helicopter back in 1957.

How much will it be worth to United Tech? According to military aircraft data clearinghouse, the list cost on a standard S-92 helicopter is $17 million. Times the 15 helos to be built after the initial development contract wraps up, that works out to $255 million -- on top of the initial $1.24 billion United Technologies will get for designing a specialty S-92 fit for a president-hauling duties.

So at the very least, we're talking about a $1.5 billion contract for United Technologies. At 2.4% of annual revenues -- and spread out over nine years to boot -- that's not going to move the needle much for United Tech. Indeed, even if you assume that Marine One variants include additional bells and whistles not found on an ordinary S-92, and push the cost up a bit, this still isn't a huge deal for United Technologies, from a financial perspective.

Foolish takeaway
What it is is a huge PR coup for the company. With this win under its belt, United Technologies can continue to boast that it is "the company that builds helicopters for the President of the United States of America" -- pretty exclusive bragging rights. If you ask me, this win by the S-92 should probably "86" talk of United Technologies spinning off or selling Sikorsky (even if it's not the company's most profitable unit). Or at the very least, if United Tech does decide to sell, I'd say the value of the Sikorsky unit just went up by a quite a bit.

Long story short, United Technologies shareholders have had to wait longer than they probably ought to have for this news. But at least the wait was worth it.

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The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. And contracts like this one help enable United Technologies to pay out a tidy 2% dividend every year. Smart investors know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (9) | Recommend This Article (6)

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 May 17, 2014, at 3:39 PM, Azbill007 wrote:

    What a total waste of taxpayer money! The military says they don't have the money to support our troops but then turns around and buys helicopters for the president to the tune of 1.2 billion dollars. Shows how phoney they are and how little they care about spending taxpayer money. Anyone involved in this decision should be fired and not be given a pension. Just another example of government and military waste!

  • Report this Comment On May 17, 2014, at 4:49 PM, dahyupyup wrote:

    that's so stupid of the government . the old one could have been updated and rearmed with the best stuff available for 451 million

  • Report this Comment On May 17, 2014, at 10:40 PM, reddwarfone wrote:

    The V-22 Tilt Rotor Osprey would of been a better choice for the Presidential helicopter.

  • Report this Comment On May 18, 2014, at 2:22 AM, Clint35 wrote:

    Why does he need a helicopter anyway? He's got a limo. Anywhere it can't go, he can take air force one.

  • Report this Comment On May 18, 2014, at 3:14 AM, Fight4Justice wrote:

    I'll tell you why they spent $1.24 billion on a presidential helicopter. First, the DOD and the Military contractors have been so close for so long that you can no longer discern the government from the private contractor. So, keeping up the contractor's profits is priority #1 and the American people don't even rate as any priority. Secondly, the government continues to operate under the old budget rule which asserts that the more you spend the more you get. Well, they are right about that and having worked for one of the aforementioned military contractors, I can assure you that they too have learned the art of the more you spend the more you get. If you doubt it, keep watching the F-35 cost continue to increase every year and they always have an army of engineers to prove why they deserve more and more money.

    Admit it or not, this type of irresponsible government will fail, indeed it must fail. Keep your eye on the clock because time is running out fast.

  • Report this Comment On May 18, 2014, at 3:28 AM, Fight4Justice wrote:

    Rest assured that Boeing and Northrop did not bow out as a gesture of goodwill to United Technologies and Lockheed, they left the table with major contracts, over and above the regular contracts, worth billions.

    If you want to cut welfare, start where the most fat can be had and that is without question the Military contractors. Some call this politics, I call it a crime against the American people. Worst of all, we have to watch as these people bankrupt this once great nation.

  • Report this Comment On May 18, 2014, at 4:08 AM, savage393 wrote:

    Reddwarfone. The V-22 has killed more Marines then Afghanistan, and if I was president I wouldn't get on one on a bet. Besides you couldn't get 3 of the damn things on the White House lawn at the same time, they are too big.

  • Report this Comment On May 18, 2014, at 4:32 AM, SeniorMoment wrote:

    Er, the problem with these helicopters is that they will come with a pretty good defensive suite of technology -thats what boosts the price.

    Why they need a fleet of them is the question that should be asked.

  • Report this Comment On May 19, 2014, at 9:12 PM, Petaluma1234 wrote:

    It is about time. The right and proper thing to do. A fair expense. A Presidents death can start a world war. They always fly in threes. If you shoot at one, you don't have the odds of hitting the right one. Some are down for maintenance. Others need to travel as well. If the President uses a limo it is a traffic nightmare for the rest of us. Don't carp. Be proud!!

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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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