The U.S. Defense Security Cooperation Agency notified Congress Thursday of plans to enter into a pair of foreign military sales contracts with the Kingdom of Saudi Arabia. If approved, the two contracts combined could be worth as much as $1.07 billion to principal defense contractor Raytheon (NYSE:RTN). They involve a truly staggering amount of ordnance.
Together, the proposed transactions about which DSCA notified Congress call for the sale of:
- 9,650 BGM-71 2A Tube-launched, Optically tracked Wire-guided (TOW) Radio-Frequency (RF) missiles
- 4,145 BGM-71 2B TOW Aero RF missiles
- 1,000 BGM-71 2A TOW missiles
- 750 BGM-71 2B TOW missiles
- and an assortment of 154 "fly to-buy" TOW2B and TOW2A missiles.
Thus, Saudi Arabia is seeking to purchase 15,699 missiles in total. All TOW missiles are designed primarily to be used as anti-tank weapons. TOW Aero missiles have greater range than the base model, while the TOW RF variant is designed so that it can be guided not only by wire but also radio-controlled. TOW Aero RFs have both extended range and the ability to be guided by radio control. Meanwhile, "fly to-buy" units are selected from a delivery lot at random for test firing as a cost-effective way of ensuring that a given batch of missiles is in working order. (They must still be paid for, however. Hence the name.)
DSCA did not say precisely why Saudi Arabia is stocking up such a very large amount of munitions, noting only that "the proposed sale will support the Ministry of the National Guard's defense and counter-terrorism missions. The sale will also improve Saudi Arabia's capability to meet and defeat current and future threats from enemy armored vehicles. Saudi Arabia will use the enhanced capability as a deterrent to regional threats and to strengthen its homeland defense."
At the same time, DSCA assured Congress that the proposed sales "will not alter the basic military balance in the region, and that they will not have any "adverse impact on U.S. defense readiness."
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Raytheon. 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.