How much is a human life worth? $1,000? $1 million?
According to the Pentagon, it costs about $815,000 a year to train, equip, put in the field in Afghanistan, and keep supplied there, a single U.S. soldier. And in that context, the $118 million that the Army just agreed to spend keeping soldiers safe, by beefing up the armor on General Dynamics' (NYSE:GD) Stryker armored vehicles, may be money well spent.
Back in January, as you may recall, budget cuts necessitated by an impending government sequester imperiled plans to have General Dynamics convert a fleet of 4,187 Strykers from a flat-bottomed design vulnerable to attacks by roadside bombs, to a beefier double-V hulled (DVH) design with survivability similar to that of an MRAP. Slowdowns in the rate of upgrades, and funding delays for getting upgrades done at all, had General Dynamics getting ready to lay off as many as 139 workers at its Stryker plant in Anniston, Ala.
But on Tuesday, General Dynamics announced that it has won a reprieve, in the form of a $118 million dollar contract from the U.S. Army's TACOM to convert 66 flat-bottomed Stryker infantry combat vehicles to the new DVH design. With your average Stryker capable of carting around a crew of two, plus a squad of nine infantrymen in back (so, 11 soldiers total), these 66 upgraded Strykers have the potential to keep some 726 U.S. soldiers safe from harm...
...and to protect the Army's $592.2 million investment in them.
What it means to investors
Basic math tells you that investing $118 million to save $592 million is a pretty good investment. And if the Army comes to the same conclusion, there could be more Stryker upgrade contracts coming General Dynamics' way.
General Dynamics says the instant contract will keep its workers in Anniston busy from about July 2014 through February 2015. GD had built or converted about 700 more DVH-variant Strykers (enough to fill out two brigades) through July 2013, including the initial 52 DVHs from a pilot project. But that still leaves some 3,400 Strykers out there, motoring around on vulnerable flat bottoms.
General Dynamics believes that the Army will proceed with plans to upgrade a third Stryker brigade -- 330 vehicles, of which this week's 66 are just the start -- to DVH over coming years. If it's right about that, then this week's $118 million award could quintuple in size... and that would still leave more than 3,000 vehicles to be upgraded later on, should the Army be so inclined.
Long story short, this is a revenue story for General Dynamics that could last a long time. It will cost taxpayers money, true. But the soldiers whose lives may be saved by the more bomb-resistant design would probably say it's worth the cost.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.