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Defense News Roundup: Another Slow Week at the Pentagon

By Rich Smith – Feb 9, 2014 at 6:45AM

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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, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

So what has the Pentagon been up to this week?

Actually, very little. DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2014. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Spending has been exceedingly light this year, though, with the Pentagon awarding only $13 billion in contracts year to date -- less than half the budgeted amount. This trend continued into the most recent week, with contracts amounting to "only" $2.6 billion.

And what did the generals get for their (read: "our") money?

"Virginia" is for submarine lovers ...
Defense contractor General Dynamics (GD 0.59%) claimed the week's single biggest award on Tuesday, when the Navy gave the company $520 million in additional funding. General Dynamics needs the funds for the purchase of long lead-time parts and materials required to build the next four nuclear attack submarines on its construction schedule: the Virginia-class boats SSN 794, SSN 795, SSN 796, and SSN 797.

... but Boeing is for submarine hunters
At the same time the Pentagon was awarding General Dynamics funds to build our submarines, it also exercised an option to have Boeing (BA 2.01%) design instructional courseware and to support training in the use of its new P-8A Poseidon submarine hunting jet aircraft. Boeing's Poseidon contract received an additional $22 million in funding to assist with this work through December 2016.

General Atomics reaps profits
There weren't a whole lot more contacts of any real size awarded last week. But of those that were awarded, privately held General Atomics claimed two. Both funding work on the MQ-9 Reaper drone -- specifically, the purchase of 38 armed extended-range Reapers for the Air Force, and the provision of software upgrades for Reapers operated by the Air Force Special Operations Command. Total value: $134 million.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's move on to one contract that may not yet be incorporated into defense contractors' stock prices.

On Tuesday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to sell the government of Iraq a set of electronic equipment sufficient to outfit four Iraqi military airbases -- Tikrit, Al Basra, Al Kut, and Taji -- with new Air Traffic Control and Landing Systems. DSCA puts the value of these equipment sales at $700 million.

This contract hasn't been officially announced. Indeed, DSCA says it doesn't even know yet who will serve as principal contractor on it. (Although we note that Raytheon (RTN) is the company responsible for building the AutoTrac II navigation suites and the ASR-11 Airport Surveillance Radars that would be integral to setting up the air traffic control and landing systems, and would be a logical choice.)

For now, few investors are factoring this multi-hundred-million dollar contract into their valuations of the company. Very few people know about it -- except that now, you do.

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics and Raytheon. 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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