The Motley Fool Previous Page


Defense News Roundup: Drones, Mega-Medical Supply Contracts, and FedEx Goes to War

http://www.fool.com/investing/general/2013/11/17/defense-news-roundup-drones-mega-medical-supply-co.aspx

Rich Smith
November 17, 2013

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 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). With a holiday in their honor held on Nov. 11, though, the generals had a bit shorter shopping spree last week than ordinary.

Result: The Pentagon awarded only about $3.33 billion worth of defense contracts last week. Here are a few of the things they spent it on.

Northrop's current Fire Scout, the MQ-8B, can already take off from and land on ships at sea. Source: Northrop Grumman.

Papa? When I grow up, I want to be a drone
On Thursday, the U.S. Navy signed a contract with Textron's (NYSE: TXT) Bell Helicopter Unit to sell it three Bell 407 helicopters. Northrop Grumman (NYSE: NOC) is upgrading the current MQ-8B Fire Scout Navy drone to a new MQ-8C configuration. The company uses Bell 407 helos to test improvements it wants to make to the Fire Scout. Ultimately, Northrop hopes to increase the robo-whirlybird's flight range by as much as 30%.

In pure dollar terms, this wasn't a big contract -- only $8 million or so. But it does provide evidence that progress is being made in development of the new MQ-8C.

When a bomb absolutely, positively has to get there overnight
The Pentagon awarded its biggest contract Tuesday to a consortium of several transport companies broadly known as the "Federal Express Charter Programs Team." Worth $145 million, this contract extension pays FedEx (NYSE: FDX) and a handful of other transportation contracts to provide international airlift services in support of the U.S. military.

Doctor! We need $1 billion in medical supplies, stat!
They say an Army marches on its stomach -- but what does the Army do when it has a tummy ache? Apparently, it pays upwards of $1.3 billion to buy medical, surgical, and other supplies from private industry.

At least that's what the Pentagon did on Wednesday, when it awarded a total of four separate contracts to purchase medical supplies for U.S. Army, Navy, Air Force, Marine Corps, and federal civilian agency customers. The biggest winner of the week, with a $1 billion contract to supply such supplies through Aug. 15, 2015, was Cardinal Health (NYSE: CAH). 

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's consider an aspect of one contractor's business, which many investors may be overlooking: civilian contracts.

When talking about "defense contactors," we ordinarily -- and justifiably -- expect them to book primarily defense contracts. But in recent months, contractor General Dynamics (NYSE: GD) has been winning more and more contracts to build giant 610-foot-long, 50,000-ton liquefied natural gas tankers for civilian shippers. Last week, GD inked a deal with SEACOR Holdings subsidiary Seabulk to build the fuel shipper one such "LNG-conversion-r