Even before Russia invaded Ukraine, Ukraine's neighbor to the west, Poland was looking to buy tanks and other military wares.
On Feb. 17, the U.S. Defense Security Cooperation Agency (DSCA) advised Congress of a request from the government of Poland to place a massive $6 billion order for new military equipment. Topping Poland's shopping list:
- 250 M1A2SEPv3 Abrams Main Battle tanks manufactured by American defense contracting giant General Dynamics (GD 0.45%).
- 26 M88A2 HERCULES Combat Recovery vehicles (i.e., tow trucks for tanks) manufactured by Britain's BAE Systems.
- 17 M1110 joint assault bridges -- mobile bridges for crossing rivers, designed by Italy's Leonardo DRS and built upon the chassis of General Dynamics' Abrams.
- Nearly 35,000 rounds of 120-mm tank ammunition.
The total value of the weapons package ordered by Poland, and now being coordinated by the U.S. Department of Defense, adds up to the aforementioned $6 billion. As DSCA advised, the money will be spread around among several "principal contractors" -- including all of the companies named above, as well as companies including Honeywell, Lockheed Martin, and Raytheon.
But the biggest chunk of the cash will surely go to General Dynamics, maker of the biggest-ticket items on the shopping list.
How big is this for General Dynamics?
Abrams main battle tanks don't come with a sticker price glued to the window, but at a recently reported price tag of $8.5 million apiece, this Polish tank purchase is conservatively worth at least $2.2 billion to General Dynamics -- and potentially a whole lot more.
How much more? While the DSCA didn't itemize prices, the cost of providing logistics and maintenance services on the armored vehicles probably makes up an unstated but large chunk of the total $6 billion package price.
Poland has actually been negotiating this purchase for several years now and the 250 tanks that it is buying now make up only about a quarter of the ultimate number of armored vehicles that Poland is prepared to purchase.
In total, Poland has floated plans to buy approximately 1,000 new tanks to upgrade its existing armored forces, four times the size of this current order. So while it's difficult to be exact, I see the potential for this purchase to get a whole lot bigger than just $2.2 billion. Indeed, we could see General Dynamics eventually make much more in revenue from upgrading the Polish armored forces.
What's more, we're not just talking about revenue here. General Dynamics is best known for its tanks and earns impressive profit margins from building them. According to the latest data from S&P Global Market Intelligence, General Dynamics' tank-building combat systems division is its most profitable business, although the company's smallest by revenue. On each dollar of revenue brought in, General Dynamics earns a robust 14.5% operating profit margin.