With the war in Iraq over, and the war in Afghanistan winding down, America has a problem. We can sum it up in three words: "Too many MRAPs."
Too many tanks, trucks, and howitzers, too. But today we're talking about the MRAPs. Last week, DefenseNews.com reported that the U.S. government is trying to sell off 2,000 of its Mine-Resistant, Ambush Protected Vehicles, currently in service in Afghanistan.
Why? In a nutshell, because according to Pentagon estimates, the cost to egress an MRAP from Afghanistan, load it on a transport and ship it back stateside, and then repair and rehab the thing to get it ready to go to war again -- all this will cost roughly half the price of what it cost to produce the MRAP in the first place, or about $250,000 to $300,000 per vehicle.
To date, the Pentagon has bought upwards of 21,000 MRAPs from a whole slew of suppliers -- everyone from General Dynamics (NYSE:GD) to Oshkosh (NYSE:OSK) to Britain's BAE Systems. Currently, the U.S. has about half of these MRAPs still in service in Afghanistan. Shipping all 11,000 of these war-buggies home, therefore, would likely set the taxpayer back anywhere from $2.75 billion to $3.3 billion. That's on top of the $7 billion worth of war materiel that the U.S. plans to destroy on its way out the door, to prevent it falling into the wrong hands after we're gone.
The nation has already spent some $678.5 billion on the Afghan war, of course, and a further $815 billion plus in Iraq. So you can understand if taxpayers aren't exactly thrilled to learn that they may be on the hook for as much as $10 billion more, just to wind things down.
Do I hear a bid for $500,000? No? How about $250,000? $1,000? $1?
Thus, the government would like to reduce the size of this war-exit toll if it can. If it succeeds in finding local buyers for 2,000 MRAPs, this could save taxpayers as much as $600 million -- and maybe even more, if we are lucky enough to, you know, find a buyer willing to actually pay for the things.
At this point, though, we're in a "no reasonable offer will be refused" kind of a situation. Back here in the U.S., you see, we've already brought a few MRAPs home -- and they're literally giving 'em away. In September, for example, Ohio State University caught some flak for taking possession of a surplus Navistar (NYSE:NAV) MaxxPro MRAP that the Pentagon was offering for free. Similar surplus MRAPs have founds homes at nearly a dozen state and local police departments, according to The New York Times.
What it means to you
So much for the story of the rise and fall of the MRAPs. Now, what does all of this mean for investors? I see two main takeaways here:
First and foremost, with the Pentagon's biggest problem being how to dispose of thousands of unneeded MRAPs, chances are that this particular revenue stream -- building MRAPs for the military -- has dried up. Contractors General Dynamics, Oshkosh, Navistar, and BAE will see no repeat of the estimated $48.5 billion spent on this program any time soon.
Second, and significant to investors in these same companies: The more successful the Pentagon is in selling off MRAPs overseas, the less revenue can be expected from Pentagon contracts to rehabilitate used MRAPs for future service.
That is ... unless someone else buys them. Then hiring a contractor to get the MRAPs back in warfighting shape will be their problem.
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 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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