If my fellow Force Protection (Nasdaq: FRPT) investors were dismayed by General Dynamics' (NYSE: GD) contract announcement early this week, well, join the club.
And when I say "the club," I don't just mean myself. Tuesday's news that the General has landed a $102 million contract to sell mine-resistant, ambush-protected (MRAP) vehicles to Spain affects a whole row of defense contractors operating in this market:
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Ceradyne (Nasdaq: CRDN) and Oshkosh (NYSE: OSK), two firms who've been trying to break into the MRAP biz with their second-generation "BULL" offering.
- Recent NYSE-returnee Navistar (NYSE: NAV), which has evolved into the odds-on favorite for U.S. military MRAP contracts.
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Textron (NYSE: TXT), whose medium armored vehicles could theoretically substitute for an MRAP in many battlefield situations.
Yet, as a partner with General D in building MRAPs through their Force Dynamics joint venture, Force is suffering both the injury of lost revenue and the insult of being excluded from the deal.
What deal?
Oops -- sorry, I almost forgot. On Tuesday, General D signed a contract to sell at least 100 RG-31 Mk5E 4x4 MRAPs to the Spanish Army, at an approximate price of a million bucks a pop. If Spain likes what it sees, it has an option to buy as many as 80 more of the armored beasts. This is at least the second sizeable, independent MRAP contract the General has inked in a year, and the first I've seen in the international market.
Why is this bad for Force Protection in particular? In large part, because as the U.S. military has been favoring its rivals in awarding domestic MRAP contracts, Force has increasingly looked abroad for new sales, particularly to the militaries of Italy, Great Britain, Iraq, and Yemen. That was nice while it lasted, but now it looks like General D intends to stomp all over Force's international happy hunting grounds.
A silver lining to this very grey cloud
Is there a plus to this news? Maybe, but you have to reach for it. As you know, Spain famously withdrew its forces from Iraq in early 2004. So what's it need 100 MRAPs for, anyhow? (Or 180, for that matter?) I'm guessing these vehicles will go to Afghanistan, where Spain is a member of the NATO coalition battling a resurgent Taliban -- a foe demonstrating an increasing avidity for IED-based-warfare.
Whatever it is that Spain needs the MRAPs for, the very fact that Spain, of all nations, is in the market suggests that this opportunity could be bigger than we thought. Maybe even big enough for Force Protection to share with General D.
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