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 lately?
Between "base" spending levels and supplementary spending on overseas contingency operations (OCO), the DoD is budgeted to spend about $11.8 billion a week in fiscal 2014. $6.2 billion of that goes to military hardware, infrastructure projects, and supplies, with the balance going to pay personnel. And the Pentagon came pretty close to hitting its spending target this past week, awarding $5.92 billion worth of contracts.
And what did the generals get for their (read: our) money?
Everything old is nuke again
Two decades after the end of the Cold War, you might think nuclear weapons were passe, but the Pentagon does not. On Friday, it awarded Lockheed Martin (NYSE:LMT) more than $146 million in funding on a previously "un-priced letter contract" to purchase Trident II (D5) submarine-launched nuclear missiles for the U.S. Navy. This money will also fund work on "Life Extension development" and support for already-deployed nukes through November 30, 2019, both for the U.S. Navy and for Great Britain's Royal Navy as well.
Say "hola" to helos
Contract awards in which the Pentagon plays intermediary on foreign weapons sales to U.S. allies were a popular use of funds last week. In addition to the Trident award, which benefited the U.K. as well as the U.S., Monday saw a pair of weapons contracts awarded that will benefit U.S. allies. Of particular note:
- United Technologies (NYSE:RTX) was awarded a $204 million contract to supply the Mexican Air Force with 18 "green" (i.e., not yet painted in the final color scheme that the buyer will use) UH-60M Black Hawk utility helicopters, with delivery due May 30, 2016.
- A further $69 million was awarded to Lockheed Martin subsidiary "Hellfire Systems, LLC" to purchase 1,361 Hellfire II tactical missiles for use by the militaries of Indonesia, Iraq, Jordan, Saudi Arabia, and Qatar. A former joint venture between LockMart and Boeing (NYSE:BA), Hellfire Systems was at last report still paying residual "fee-per-missile" installments to Boeing related to its historical role in setting up the joint venture.
- And L-3 Communications (NYSE:LLL) won $31 million to fund the incorporation of unspecified new "intelligence, surveillance and reconnaissance capabilities" into three Cessna 208B aircraft operated by the militaries of Kenya, Mauritania, and Niger.
Opportunities on the horizon
So much for the contracts everyone knows about. Now, let's end this week's round-up with one contract you may not yet have heard of -- and coincidentally, this contract looks like it will go to the same company that makes the Cessnas that L-3 is upgrading: Textron (NYSE:TXT).
On Friday, September 19, the Defense Security Cooperation Agency confirmed it has notified Congress of a planned sale of 18 Huey II helicopters to the Lebanese Armed Forces. Spare parts, training, maintenance, and other services are to be included as part of the sale. And as primary contractor, Textron will receive $180 million on this contract if Congress allows it to proceed.
Mind you, this contract is not "official" yet, and the Pentagon hasn't yet announced its award. In all probability, most investors don't even know that it's in the works -- except that now, you do.
(Hint: Congress has never vetoed a foreign military sale after receiving DSCA notification. Ever.)