For nearly a decade, and nearly two-thirds of a trillion dollars, the U.S. taxpayer has been floating the Iraqi government and paying its defense bills.
Well, no more. We learned last month that Iraq intends to purchase 36 of Lockheed Martin's (NYSE: LMT ) F-16 fighter jets to start rebuilding its own air force. Over the weekend, the news broke of yet another purchase -- half a dozen Beechcraft King Air "spy planes," manufactured by the artist formerly known as Raytheon (NYSE: RTN ) Aircraft Company. ("Formerly" because, as you may recall, Raytheon sold it to private-equity powerhouses Goldman Sachs (NYSE: GS ) and Onex.
And yes, Iraq will be doing this on its own dime. We don't know how many dimes are involved, but we do know that when news surfaced of the Iraqi government's interest in buying the RAC's King Air planes, the rumored price was some $132 million. Lockheed's warbirds will cost quite a bit more; the potential value of the first contract could be worth several billion dollars.
What it means to you
What do these deals mean to investors? Well, that depends on what you're investing in:
- If you own Lockheed stock, Iraq's addition to the string of recent F-16 purchasers on its own means more revenue for your company while you wait for F-35 production to ramp up.
- If you own other defense contractors, Iraq's ability to buy military hardware on its own suggests that we could see further purchases. The Iraqi military's Air Force is starting to look capable of holding its own, but I'll bet they could still use a few Boeing (NYSE: BA ) -built Apaches and Blackhawk helicopters from United Technologies (NYSE: UTX ) . And are Cobras and Ospreys from Textron (NYSE: TXT ) on sale? Throw those in the cart as well.
- Meanwhile, if you're betting on a long war in Iraq continuing to support sales to the U.S. military, it's time to start revising your expectations. The more capable Iraq becomes of doing things on its own, the less need it has for U.S. support in-country.
In all, these aren't such bad things -- neither for U.S. taxpayers, nor, as the recent sales above show, for defense-industry investors.
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