The United States has a long, and expensive, list of priorities to defend itself from missile attacks. The Motley Fool's Nick Sciple and Fool.com contributor Lou Whiteman discuss what the Pentagon would like to do, and who will benefit as this money is spent, on this segment of Industry Focus: Energy.
A full transcript follows the video.
This video was recorded on Jan. 31, 2019.
Check out the latest earnings call transcripts for companies we cover.
Nick Sciple: Let's talk about the Missile Defense Review that I mentioned earlier. It came out on Jan. 17. It's focused on improving the United States' ability to defend against missile attacks. Sometimes they say defense is the best offense. Maybe that's what we're thinking about from our military perspective today. Can you talk about what was on that wish list, when it comes to the new Missile Defense Review, and break that down for us a little bit?
Lou Whiteman: Sure. This is part of a change in focus at the Pentagon. We spent a lot of time focused on fighting insurgents mostly in the Middle East. There's a renewed focus on major power conflict, as they call it, which sounds lovely, I know. Part of this is looking at where Russia and China are today, and how we stack up. One area, hypersonics, missiles that travel five times the speed of sound. Arguably, Russia is ahead of us. Arguably, China might even be ahead of us. These are missiles that our current defenses can't even begin to deal with. We need to change that. We also need our own offerings. We are behind in having our own offering to counter that.
This an area where we are already seeing Pentagon spending. This an area where Lockheed Martin really stands out. They won $1.4 billion in contracts last year, one of them, the Pentagon in their notes justifying that contract said, "No other contractor has this level of design maturity," and talked about hundreds of millions of dollars in redundant costs if they went with anyone other than Lockheed Martin, just to get that other contractor up to speed.
This isn't going to be a $50 billion area like the bomber, but this is an area where you're going to see a lot of R&D. The contractors love the R&D because it ends up in other places, the famous Lockheed Skunk Works, things like that. This is an area that's really going to fuel the R&D inside of Lockheed and inside some of these contractors for years to come.
Another area is Missile Defense. The THAAD system is another Lockheed system. The Aegis Combat System is the computers that run it, that's another Lockheed system. Raytheon, with its Radar and with its Patriot. Raytheon has the Radars that run to THAAD. It has its Patriot missiles. These are all good systems. THAAD has been in the news a lot because it's our primary deterrent to North Korea. But none of them are ready for a hypersonic world. We have got to figure that out. The most likely cost-efficient way is to pay these contractors to make the existing systems better. That is, again, a huge opportunity for Lockheed, and a huge opportunity for Raytheon.
Sciple: Yeah, the significance of these hypersonic weapons, and that they're too fast for our defense capabilities to stop them, it's really something that's important for us to defend against and to have in our offering.