Defense News Roundup: When the A/C Goes Out, the U.S. Army Calls a Contractor

Here's our weekly rundown of the major stories in defense spending.

Rich Smith
Rich Smith
Jul 20, 2014 at 10:00AM

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). However, this past week's spending ran considerably under budget at just $4.73 billion in contracts awarded.

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

Checking the oil and rotating the tires on an F-35. Photo: Wikimedia Commons.

F-35 repair shops
The F-35 Joint Strike Fighter is a big deal for Lockheed Martin (NYSE:LMT). Worldwide, it's expected to generate upwards of $1.1 trillion in revenues for the company over the next 60 years -- but less than half of this will go to actual fighter jet purchases. The bulk of the money will be spent servicing, maintaining, and upgrading the plane -- and as we saw this week, preparing to service, maintain, and upgrade the F-35.

On Monday, Lockheed was awarded $279 million in extra funding to set up supply depots at which the U.S. Air Force and Navy will service their hundreds (then thousands) of F-35s over the decades to come.

Cool in the summer, warm in the winter
It's not as "sexy" as churning out certified killing machines for the Pentagon. But as it turns out, the basic grunt work of keeping things running is big business for military contractors. In another example of this truism, building environmental specialist Johnson Controls (NYSE:JCI) won a big $450 million contract this week. Its subject: Installing HVAC monitoring and control systems on U.S. Army Corps of Engineers projects over the next five years.

Airplanes for India
That's not to say that no one was buying actual military equipment, this week, though. India was. Or is. Or soon will be. Late-breaking news in the week was that Lockheed Martin has just been granted a sizable contract to supply the Indian military with six C-130J military transport aircraft. Classed as a "foreign military sale," the U.S. Air Force will be acting as intermediary on this sale. But India will foot the actual bill -- $565 million for delivery by April 30. 2020.

Opportunities on the horizon 
So much for the contracts that everyone knows about. Now, let's end this week's round-up with one contract that you may not yet have heard of.

That C-130 sale to India sounds like a lot of money -- $565 million. But really big military contracts these days are counted in the billions. One such deal -- the biggest one we've seen so far this year -- is currently in the works over in Qatar, where Secretary of Defense Chuck Hagel this week signed an agreement that will see the Persian Gulf nation ante up $11 billion for purchases of U.S. military hardware.

Media reports have Qatar ordering some two dozen Apache attack helicopters from Boeing (NYSE:BA) under this agreement, plus Javelin anti-tank missiles, and Patriot anti-aircraft defense systems -- both jointly produced by Lockheed and Raytheon (NYSE:RTN). In order of value, the sales appear to be divided up as follows: Lockheed will reap upwards of $5 billion from the missile sales, Boeing more than $3 billion for the Apaches, and Raytheon roughly $2 billion for its part in producing the missiles.

The Pentagon hasn't yet awarded official contracts to produce the equipment, of course. Not all investors know that these sales are even in the works -- or are factoring the potential revenue boosts to these companies into their valuations of the stocks. Except that now, you do -- and can.

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Patriot missile purchases from Lockheed Martin and Raytheon make up the bulk of Qatar's weapons-shopping wishlist. Photo: Wikimedia Commons.