Defense News Roundup: Boeing Gets Contracts for Bombers ... and Bombs

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

Jul 13, 2014 at 6:00AM

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.) However, this past week's spending ran considerably under budget at just $2.29 billion in contracts awarded.

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

Did the Air Force's B-1B Lancer bomber just get a stay of execution? Photo: Wikimedia Commons.

Hey! That doesn't look like an A-10
For months, Congress and the U.S. Air Force have been going back and forth about whether to keep or cancel the A-10 Warthog -- and if they do keep it, about what other aircraft might need to be mothballed to free up money to keep the Warthog flying. One option that's received some press lately has been to cancel an entire other class of aircraft, such as the B-1B "Lancer" bomber. According to Air Force officials, canceling just the 66 B-1 bombers the Air Force has in inventory could free up enough funds to keep all 326 of its A-10s flying.

But in an indication that this may not be the way the wind is blowing, the Air Force awarded Boeing (NYSE:BA) a $10 million contract Wednesday to continue making repairs on 23 B-1B aircraft through July 2016. Just as you're unlikely to sink more money into the family car before trading it in for a new ride, though, the Air Force is not likely to be sinking funds into repairing B-1s that it's expecting to retire.

Implication: The Air Force is not seriously thinking about retiring the B-1B.

Eyes in the sky
In other aviation news, Northrop Grumman (NYSE:NOC) collected a total of nearly $70 million in contracts for spare engines, avionics data, and "equivalent flight hours" fatigue testing on E-2D Advanced Hawkeye airborne early warning aircraft on Monday.

Last week, if you recall, the Navy had awarded Northrop a much bigger Advanced Hawkeye contract -- $3.64 billion big -- to deliver 25 E-2D Advanced Hawkeyes through August 2021. This week's smaller awards will help fund work putting the Hawkeyes through their paces, and getting a better idea of how long the new aircraft will stand the test of time -- and how soon the Navy should expect to have to ante up more money to buy new airborne early-warning birds.

U.S. Navy E-2D Advanced Hawkeye AEW aircraft taking off from the deck of the aircraft carrier USS Harry S. Truman (CVN 75). Photo: Wikimedia Commons.

Who will watch the watchers?
Advanced Hawkeyes fly as high as 6.5 miles above sea level while watching over their carrier strike groups, keeping a lookout for hostile warships, missiles, and aircraft. To reach a higher vantage point, you pretty much have to go to space ... or hitch a ride with someone who's already up there.

That was the subject of an even bigger Pentagon contract awarded this week -- a $495 million "Hosted Payload Solutions" contract to buy space aboard orbiting commercial satellites, into which the Pentagon can slot in some of its own communications and surveillance "payloads." Like renting an office building and then subleasing out unneeded floorspace, commercial firms sometimes agree to "host" military payloads aboard their satellites for compensation. On Thursday, the Pentagon awarded 13 firms the right to offer it hosting space at attractive rates. Firms such as Airbus, Boeing, and Intelsat will bid against each other for the privilege of hosting Pentagon equipment aboard their orbiting satellites through 2029.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's end this week's roundup with one contract that you may not yet have heard of.

In a late-breaking announcement, on Monday, the U.S. Defense Security Cooperation Agency, or DSCA, confirmed that the week before (the Thursday before July 4, to be precise), it had notified Congress of a planned sale of nearly 1,000 "kits" used to convert conventional "dumb" bombs into "smart" ones.

Dubbed "Joint Direct Attack Munitions," 913 of these kits will be sold to the government of Singapore for use in converting its arsenal of Mk-84 2000-lb. bombs into smart bombs. Additionally, principal contractor Boeing will supply Singapore with 100 bomb fuzes, and 300 laser guidance sets. DSCA noted that the contract will be worth $63 million to Boeing if Congress approves it.

Unapproved as of this moment, this last contract hasn't yet been officially announced. For now, few investors know about it, or are weighing the implications of this arms sale, and others that may follow it, into their valuations for Boeing. Now, you can be one of them.

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The Mk-84 is one of the bigger bombs that can be made "smart" with a JDAM kit. Illustration: Wikimedia Commons.

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. 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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