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Defense News Roundup: U.S. Navy Buys Billions of Dollars' Worth of New Warships

By Rich Smith - Mar 16, 2014 at 7:45AM

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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?

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.) So far this year, the Pentagon has awarded contracts worth approximately $20.33 billion -- including $4.57 billion in contracts announced this past week. That's about two-thirds under the budgeted amount.

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

Lots of warships
On Monday, the U.S. Navy awarded Lockheed Martin ( LMT 0.99% ) and Austal ( AUTLY ) -- builders of Littoral Combat Ships, or LCSes -- a total of $1.38 billion to begin construction on a series of four new LCSes. Austal, which is building its Independence-class trimaran LCSes in cooperation with General Dynamics ( GD 1.62% ), will be building two new Independence-class vessels. Lockheed Martin will build two more of its own monohull design Freedom-class LCSes.

These contracts cover the construction of the basic seaframes on the ships, plus the cost of buying and installing some, but not all, of the vessels' electronics and weapons systems. Additional funds will be needed to complete the warships.


USS Independence. Photo: Wikimedia Commons.

Lots and lots of warships
General Dynamics won a separate contract Monday, worth $57 million, to prepare for "post-shakedown" work necessary to fix any problems revealed with the recently delivered nuclear attack submarine USS Minnesota, which it has already built for the Navy.

Lots and lots and lots of warships
And that's not all. Before the week was out, General Dynamics booked yet another warship contract win. On Friday, the Pentagon awarded the defense contractor $643 million to begin work on building a new Arleigh Burke-class (DDG 51) guided missile destroyer for the Navy. Simultaneously, the Navy gave a $602 million contract to GD-rival Huntington Ingalls ( HII 1.61% ) to build a second DDG 51. As with the LCS, the Navy is splitting awards for the construction of destroyers roughly 50-50 between the two main defense contractors bidding on the work.

Lots and lots and lots, and ... well, you get the picture
Just in case you haven't yet gotten the impression that this was a very good week for the U.S. Navy -- and the defense contractors that sell to it -- General Dynamics won yet another contract on Wednesday that bears mentioning. For $128 million, the company will be drafting plans and doing construction work on a new "Afloat Forward Staging Base" to be dubbed the USNS Lewis B. Puller (T-MLP-3 / T-AFSB-1). When complete, the vessel will be nearly as big as a full-fledged aircraft carrier, displacing 80,000 tons and offering the ability to deploy abroad, and base at sea, everything from U.S. Marines to special operations forces to disaster-relief specialists to clean up after a hurricane. 


Artist's conception of how USNS Lewis B. Puller (T-MLP-3) will look when complete. Source: Wikimedia Commons.

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 Pakistan a package of upgrades for that nation's fleet of C-130 transport aircraft. Assuming the contract is allowed to go forward, six Pakistani C-130s of the -B and -E configurations will upgrades to their avionics, engine management software and mechanical parts, cargo delivery systems, and outer wing sets for a total price of $100 million.

No principal contractor has yet been named for this work, but Lockheed, as the plane's manufacturer, would be a logical choice. Additionally, in its notification to Congress, DSCA pointed out that the five C-130B and 11 C-130E aircraft in Pakistan's air force are all "facing airworthiness and obsolescence issues, and will require upgrades and repairs for continued operation and effectiveness." This raises the possibility that after these first six planes are upgraded, additional upgrade work -- and additional revenues -- will be announced in the not-too-distant future.

This contract hasn't been officially announced yet, and isn't common knowledge. Thus, few investors are factoring the potential for additional revenues into their valuations for Lockheed Martin. Very few people know about it -- except that now, you do.

Thanks for all the great stock tips, Pentagon!
You don't always have to look far to find good investments. Sometimes, profiting from our increasingly global economy can be as easy as investing in your own backyard -- and the Pentagon's helpful habit of publishing all its contracts daily as they're awarded certainly makes that easier. Want to find more "easy to understand" investments? Read The Motley Fool's brand-new special report, The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$333.81 (0.99%) $3.28
General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$197.63 (1.62%) $3.15
Huntington Ingalls Industries, Inc. Stock Quote
Huntington Ingalls Industries, Inc.
HII
$181.16 (1.61%) $2.87
Austal Limited Stock Quote
Austal Limited
AUTLY

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