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Pentagon Watch: Where Did Your Tax Dollars Go This Week?

By Rich Smith – Jun 23, 2013 at 8:00AM

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Here's our weekly rundown of the major stories in defense spending.

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, it ranks among the most "open" of our government agencies. The Department of Defense is positively sunshine-y in the frequency and clarity with which it describes the contracts it issues to private companies, updating them daily on its website.

 So what has the Pentagon been up to this week?

The Department of Defense requested $614 billion in total funding for the current fiscal year 2013. Spread over 52 weeks, that works out to $11.8 billion in spending. And with about 47% of that money, historically, going to personnel costs, that leaves about $6.2 billion a week to spend on military hardware (planes, trains, and main battle tanks), infrastructure projects (such as resiting a VA hospital, dredging a river, or constructing an air base), services (engineering and software design work), and military supplies.

Last week, the Pentagon awarded contracts worth a combined $6.226 billion -- putting it right on target to spend all the money it's been allotted for this fiscal year, "sequester" notwithstanding. Where did the money go?

To Russia with cash
Well, probably the biggest news of the week, and certainly the most controversial, was a contact issued Monday to pay a Russian defense contractor, Rosoboronexport, $572.2 million (later revised down to $553.8 million) for 30 Russian Mi-17 transport helicopters -- that we will promptly hand over to the Afghan National Securities Forces. This follows on a decision one week earlier to hand a Brazilian company, Embraer (ERJ 2.52%) a $1 billion contract to build fighter planes for the Afghan Air Force.

Afghan military Mi-17 helicopters in flight. Source: Wikimedia Commons.

In one respect, therefore, it appears that sequestration of defense spending may be having an effect on U.S. defense contractors -- it's forcing the Pentagon to be more careful about how it spends its cash, and to give more business to low-cost defense contractors from other countries.

Nor is the Pentagon the only actor pinching its pennies. Last week, Boeing (BA 3.84%) also headed to Brazil to sign a deal cooperating with Embraer on the global marketing of the latter's KC-390 aerial refueling tanker.

Heavily into helicopters ...
Boeing also made news this week when it landed its second multibillion-dollar contract in as many weeks, for the sale of Chinook heavy lift helicopters. Two weeks ago, the U.S. Army ordered up $4 billion worth of the whirlybirds. This week, Boeing won a $3.4 billion contract to sell more Chinooks to the militaries of Turkey and the United Arab Emirates, with the U.S. government acting as the middleman.

U.S. Army CH-47 Chinook. Source: Wikimedia Commons.

... and softly into software
Another big winner for the week was Microsoft (MSFT 4.20%). The Pentagon granted Mr. Softy a contract worth up to $412.2 million for Microsoft Blue Badge cardholder support. This contract, whereby Microsoft will assist the Defense Information Technology Contracting Organization with software design work, costs a lot -- in part because Microsoft is being asked to license access to its proprietary source code as part of the work.

Galaxy still flying
A smaller contract win, but still significant, was Lockheed Martin's (LMT -0.16%) receipt of a $27.9 million indefinite-delivery/indefinite-quantity contract to do software work upon Air Force C-5 Galaxy transport aircraft. The Pentagon has caught some flak over continued support for the Galaxy, whose basic design is now close to 45 years old. But the Galaxy remains the largest transport aircraft in the U.S. fleet, capable of carrying a half-dozen MRAPs, or five combat helicopters within its capacious cargo hold.

U.S. Air Force C-5 Galaxy hold. Source: Wikimedia Commons.

The Air Force is currently in the process of upgrading more than four dozen Galaxies under a comprehensive Reliability Enhancement and Re-engining Program. Once completed, the planes will be dubbed "Super Galaxies" -- C-5Ms, equipped with more power, a faster rate of climb, and the ability to operate off of runways 30% shorter than their predecessors require.

Opportunities on the horizon
That's about it for the highlights of last week's Pentagon contracting news, but now what should we be on the lookout for in the future? Well, probably the most interesting bit of news on that front was the announcement Thursday that the U.S. Defense Security Cooperation Agency has informed Congress of plans to sell $4 billion worth of services and equipment to the government of Saudi Arabia, as part of a plan to modernize the Saudi Arabian National Guard forces.

The contractor in charge of the project, Vinell Arabia, isn't exactly a household name here. But as it turns out, Vinell is a subsidiary of marquee defense contractor Northrop Grumman (NOC 0.71%).

The upshot: Northrop Grumman's about to land a contract worth 16% of its annual revenue haul for a whole year. The contract hasn't been announced yet. No one knows about it -- except that now, you do.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Embraer and owns shares of Lockheed Martin, Microsoft, and Northrop Grumman. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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