Defense News Roundup: Lockheed Martin Is Watching You, and Sikorsky Takes on the Drug Cartels

Here's our weekly rundown of the major stories in defense spending.

Jun 28, 2014 at 8:00AM

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 2014. A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen. This past week's total value of contracts awarded -- $6.155 billion -- was therefore almost the exact definition of an "average week" of spending at the Pentagon.

And what did the generals get for their (read "our") money?

SBIRS satellite. Photo: Wikimedia Commons

Big Brother is watching you (from way, way up)
The biggest contract awarded this past week went to the nation's biggest pure-play defense contractor, Lockheed Martin (NYSE:LMT). Winning a contract "modification" worth $1.86 billion, Lockheed has been given the go-ahead to finish up its work building the fifth and sixth Geosynchronous Earth Orbit, or GEO, satellites to be deployed as part of the U.S. Air Force's Space Based Infrared System (SBIRS).

The SBIRS constellation of satellites is tasked primarily with giving the U.S. early warning of missile launches from Earth, but its "global, persistent, infrared surveillance" is also useful for enhancing "battlespace awareness" to U.S. forces on the ground. Including work on ground operations and data processing, Lockheed will continue working on these sats through at least Sept. 30, 2022.

Hail, CSAR!!
The week's technically second-biggest award -- but potentially its largest -- went to United Technologies (NYSE:UTX), which, on Thursday, won the Air Force's long-anticipated Combat Rescue Helicopter contract.

Valued at $1.28 billion initially, this contract hires UTC's Sikorsky unit to begin development of a new Combat Search-And-Rescue (CSAR) helicopter to replace the HH-60G Pave Hawk's in use by the Air Force today. Over the course of the next five years, UTC will be asked to build as many as 112 of the new CSAR helicopters for an anticipated final cost of $7.9 billion.

Pave Hawk

HH-60G Pave Hawk, the U.S. Air Force's current combat rescue helicopter. Photo: Wikimedia Commons.

"Fat?" Nah... just a little Husky
Moving rapidly downscale in contract size, we come next to Britain-based defense contractor Chemring Group (LSE:CHG), which, on Monday, won a smallish $26.1 million contract from the U.S. Army. Reminding us that combat operations in Afghanistan and Iraq are far from finished (as if we needed the reminder with Iraq back in the headlines), the subject matter of this contract was -- IEDs.

Chemring's NIITEK subsidiary (short for Non-Intrusive Inspection Technology) will be supporting the Husky Mounted Detection System, a tractor-borne contraption capable of sending ground-penetrating radar into the earth to discover deeply buried mines and improvised explosive devices, so that they can be safely cleared. NIITEK will be doing engineering work on Husky for 21 months initially, and may be asked to begin a 15-month period of low-rate initial production of the devices thereafter, receiving additional funds for such work.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's end this week's round-up with one contract that may not yet be incorporated into defense contractors' stock prices.

On Tuesday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to sell the Government of Mexico a flight of five new UH-60M Black Hawk helicopters from United Technologies. Designed to bolster Mexican law enforcement's efforts to combat "organized crime and drug trafficking organizations" in the country, these helicopters will be equipped with advanced military gear, including infrared radar systems from FLIR Systems (NASDAQ:FLIR), and also 10 7.62mm machine guns -- two apiece.

If this sale is approved by Congress, these helos will join 18 other Black Hawks that the Mexican government previously asked to be sold to it in April. At present, Mexico is known to have only seven UH-60 helicopters (and their civilian S-70 variants) in its arsenal. This year's orders will more than quadruple the size of the country's fleet.

This last contract hasn't yet been officially announced. For now, few investors are factoring it into their valuations for United Technologies. Very few people even know about it -- and now you're one of them.

Thanks for all the great stock tips, Pentagon!
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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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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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