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 $15.8 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" $2.8 billion.
And what did the generals get for their (read "our") money?
Hellfire -- no brimstone
Defense contractor Lockheed Martin (NYSE:LMT) locked down one of the few sizable defense contracts awarded last week when, on Monday, it was awarded a $157 million deal to manufacture an unspecified number of Hellfire air-to-ground missiles for the militaries of Saudi Arabia, Jordan, and Indonesia. The foreign military sales contract was brokered by the Pentagon, but will be paid for by the foreign buyers.
Boats for SEALs
On Monday, the Pentagon handed down the news on one of the biggest contracts coming out of the U.S. Special Operations Command in recent years: privately held Oregon Iron Works will manufacturer a fleet of new Combatant Craft, Medium Mark 1 special warfare boats to be used to deliver U.S. Navy SEALs to hostile beaches. This contract was originally valued at $400 million. Part of that went to Oregon's competitor in the early rounds of the project, also-privately held United States Marine. Now that Oregon has been downselected as the contract's winner, however, to the winner will go (the bulk of) the spoils.
Look! Up in the sky! (It's a really big plane contract.)
But the top news of the week was surely the award of $1.44 billion in the form of a pair of Pentagon air transport contracts, hiring private airlines to perform the public service of transporting military materiel and servicemen around the globe. Five major airlines and air transport companies -- Air Transport Services Group, JetBlue Airways, United Continental (NASDAQ:UAL), American Airlines (NASDAQ:AAL), and UPS (NYSE:UPS) -- will all participate in the winnings, each bidding against the rest to fulfill Pentagon work orders as they are put up for bid
Opportunities on the horizon
So much for the contracts that the Pentagon made an effort to publicize last week. But now let's look at a pair of wins that received somewhat less attention -- not yet officially reported by the Pentagon's acquisitions department, but nonetheless probably the true "biggest" news of the week.
Defense contractor General Dynamics (NYSE:GD) became the hands-down, undisputed biggest winner of the week when in rapid succession, first the U.S. Coast Guard, then the Canadian government, let slip news of significant contract awards. On Friday, the Coast Guard confirmed that it has named General Dynamics' Bath Iron Works one of three finalists in a competition to build a new class of Coast Guard cutters, dubbed "Offshore Patrol Cutters." At present, General Dynamics is only entitled to be paid $21 million to fund its drawing up designs and a proposal to build the craft. But if Bath ultimately wins the competition, it stands to receive upwards of $12 billion in follow-on contracts to construct and deliver a fleet of 25 cutters to the USCG.
Almost simultaneous with that announcement, we learned that up in Canada, the Ministry of Foreign Affairs, Trade and Development was announcing "a historic multibillion-dollar contract" in which the Saudi Arabian military had agreed to buy a significant (but as-yet unconfirmed) number of light armored vehicles from General Dynamics' Canadian subsidiary, General Dynamics Land Systems-Canada. Rumor has it that this contract could be even bigger than the Coast Guard contract -- perhaps as big as $13 billion, if all options on the purchase contract are exercise.
Put it all together, and General Dynamics appears to have a shot at close to $25 billion in additional revenues coming its way -- enough to keep it busy for nearly 10 months, at its current pace.
Not bad work for a Friday. Now let's see what Monday brings ...
Thanks for all the great stock tips, Pentagon!
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