China is building a nuclear aircraft carrier, and it's making the neighbors nervous.
For months we've been hearing about Chinese military moves in the South China Sea -- everything from rattling Vietnamese fishing boats to cruising armed flotillas past neighboring islands, to building its own islands. In response, nations throughout southeast Asia and the Pacific are responding with military buildups of their own.
None more so than Australia.
That's right. The mysterious "U.S. ally" referenced above is none other than our friends from Down Under -- Australia.
In months past, we've talked about Australia's plans to potentially team up with Japan to build a fleet of diesel-electric submarines to keep watch on China from underwater, and its plans to buy MQ-4C Triton spy drones from Northrop Grumman (NYSE:NOC), to monitor goings-on from the air.
Last week, however, produced evidence that Australia's military buildup is really kicking into high gear. In a pair of "notifications" to Congress, the U.S. Defense Security Cooperation Agency advised that Australia has requested authorization to buy $275 million worth of AEGIS missile defense software, hardware and other upgrades for its three new Hobart-class "Air Warfare Destroyers" from Lockheed Martin (NYSE:LMT).
And that's not all. In addition to the destroyer upgrades, Australia has requested permission to hire Boeing (NYSE:BA) to perform "sustainment" upgrades on three dozen of its most advanced warplanes -- two dozen F/A-18E/F Super Hornet combat jets, and one dozen AEA-18G "Growler" electronic warfare aircraft.
DSCA isn't specific on precisely what upgrades Australia is looking for the fighter jets, but they must be substantial. According to cost estimates from deagel.com, Australia could buy three dozen brand new F/A-18s for just $3.3 billion.
What it means to investors
You take$275 million here, and $1.5 billion there, and pretty soon, Australia will be spending real money to beef up its military. And Australia's not alone.
According to naval analysts at AMI International, China's neighbors have plans to buy some $200 billion worth of submarines and surface combatants over the next 20 years -- making this region the world's second-biggest market for military warships. And take careful note: That's $200 billion for warships alone. It doesn't count spending on air forces (like Australia's F-18s) or even necessarily upgrades to existing fleets (such as the AEGIS systems for Australia's Hobarts).
This just goes to prove what I've already argued in the past: When investing in the defense industry, it's absolutely essential to keep an eye on which defense companies are winning market share in Southeast Asia and the Pacific. This week it's Lockheed Martin and Boeing taking home the lion's share of the loot from Australia's military buildup.
But what other major defense contractors are doing what they need to do, to expand their international businesses, and get more revenues from outside U.S. borders? Find out here.