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. Ordinarily, $6.2 billion of that goes to military hardware, infrastructure projects, and supplies, with the balance going to pay personnel. But the clock is ticking down on the fiscal year, and last week, the Pentagon seems to have felt compelled to shovel money out the door more quickly, before time runs out. Over the course of five days, DoD awarded $8.22 billion in contracts.
And what did the generals get for their (read "our") money?
Aircraft for the Air Force
The Air Force made a good-size dent in the funds it was allocated by Congress on Friday, awarding Lockheed Martin (NYSE:LMT) a $413 million contract to build it seven units of its famous C-130 transport -- the most popular military airplane in the world that isn't a fighter jet. Specifically, Lockheed will begin work on one HC-130J "Combat King II" search-and-rescue aircraft, and a half dozen MC-130J Commando II birds for the U.S. special forces.
Helos for the Army
That $413 million probably sounds like a lot of money, but in fact, Lockheed archrival Boeing (NYSE:BA) made out even better, winning $499 million in funding for "engineering logistical support services" surrounding production of "all H-47 helicopters variants." This contract simultaneously funds "delivery order 0001 " for Boeing Chinook heavy-lift transport helicopters, although the Pentagon did not specify how many helicopters this order will encompass.
And for the Navy -- a heaping helping of R&D
Lesser in value, but still impressive in its size, was a $172 million in funding awarded on Friday to the U.S. Navy's Naval Air Warfare Center Weapons Division's Combat Environment Simulation Division in China Lake, Calif. Occupying 1.1 million acres of prime Mojave Desert real estate, NAWCWD is where the Navy performs R&D and test firings on some of its most advanced weapons systems -- rockets, missiles, and fighter jets included.
The instant contract appears to be a supplement to an award originally issued back in May 2010, in which the Navy hired three other companies to design and test a "dense, realistic, and electromagnetic" environment in which the Army, Air Force, and Navy can test "defense suppression systems; electronic warfare systems; electronic countermeasures equipment; and electronic counter-countermeasures equipment. Over the next eight months, Jacobs will invest "1,060 man-years" worth of effort in helping to achieve this goal.
For the rest of us, peace of mind
Our final big-ticket item of defense spending to discuss was the $275 million award that Lockheed Martin landed Wednesday. These funds were added to a February 2012 award that the nation's largest pure-play defense contractor won for work on a Terminal High Altitude Area Defense, or THAAD, missile defense system. Sponsored by the U.S. Missile Defense Agency, THAAD is designed to destroy incoming ballistic missiles with kinetic energy, commonly referred to as "hit-to-kill."
Opportunities on the horizon
So much for the big-ticket contracts that get all the headlines. Now, let's wrap up this week's round-up with a pair of contracts that probably got less attention last week -- but that in the grand scheme of things may actually turn out to be more significant.
We all know that pilotless "drone" aircraft -- unmanned aerial vehicles -- are the future of air warfare. Why, former U.S. Joint Chiefs of Staff Chairman Adm. Mike Mullen said as much himself!
Yet the Pentagon's Defense Advanced Research Products Agency, or DARPA, worries that current drone technologies "have their limitations." Specifically, drones "require either aircraft carriers or large, fixed land bases with runways often longer than a mile. Moreover, establishing these bases or deploying carriers requires substantial financial, diplomatic and security commitments that are incompatible with rapid response." So what's needed, says DARPA, is a way to quickly build an infrastructure -- or leverage existing infrastructure -- to permit drones to begin a journey at one point, then hop from base to base en route to where they're needed.
Enter the TERN program.
Officially known as the Tactically Exploited Reconnaissance Node program, TERN is an attempt to design a new "mission truck" that can be installed aboard smaller-than-aircraft carrier U.S. warships to permit medium-altitude, long-endurance drones -- drones the size of a General Atomics Predator, for example -- to launch from and be recovered at sea. DARPA started up the program only in May of this year, so it's still in its infancy. But last week, DARPA awarded contracts to two of America's leading lights in drone technology, AeroVironment (NASDAQ:AVAV) and Northrop Grumman (NYSE:NOC), to do preliminary work on TERN.
Valued at $19 million and $20 million, respectively, the contracts are small in size at this stage. But as I said (and as the admiral did, too), this technology is the future -- and drowned out by the hubbub of larger dollar-value contracts last week, it's unlikely that many investors even know that work on TERN has begun.
Except that now you know.