We're No. 1! (At least in one respect).
We -- America -- are the world's largest exporter of military weapons. According to the Stockholm International Peace Research Institute, or SIPRI, the United States sold more weapons around the globe in the period from 2009-2013 than did any other nation, generating billions of dollars in revenue for U.S. defense contractors. But it's to whom we're selling all these weapons that is the subject of today's story.
America's No. 1 arms merchant
As a general rule, whenever a foreign nation wants to buy sizable amounts of military weapons from American defense contractors, Section 36(b) of the U.S. Arms Export Control Act, or AECA, requires that Congress be notified of the pending sale, and given an opportunity to reject it. (Hint: Congress has never rejected an arms deal. Ever.) The task of notifying Congress of anticipated arms deals falls to the Defense Security Cooperation Agency, or DSCA, which also informs the public whenever it makes a notification.
Last week, this task kept DSCA very busy indeed.
You get an arms deal. And you get an arms deal. Everybody ... gets an arms deal!
In a flurry of deals, DSCA notified Congress this week of not one, not two, but six separate sales of American military equipment to buyers abroad. Specifically:
On May 5, DSCA informed Congress of plans to sell 684,000 M203 40mm grenades, 532,000 MK19 40mm grenades, 40,000 howitzer rounds (155mm caliber), and 5,000 81mm mortar rounds to the Iraqi military. In total, this ammunition dump will generate $395 million in revenue for the two principal contractors, AMTEC and American Ordnance. According to S&P Capital IQ, American Ordnance is a private company, but AMTEC is a subsidiary of ... National Presto Industries (NPK) -- maker of the Presto SaladShooter.
Missiles are on the menu in Southeast Asia, where Malaysia is buying $21 million worth of AMRAAM medium-range air-to-air missiles, while Indonesia is stocking up on 50 AIM-9X-2 Sidewinder Block II short-range air-to-air missiles, 20 for training and 30 for actual use. Valued at $21 million and $47 million respectively, both of these sales will benefit their primary contractor, Raytheon (NYSE: RTN).
And Jordan has requested permission to buy one single UH-60M Black Hawk helicopter from United Technologies (RTX), powered by two T700-GE-701D engines from General Electric (GE). According to DSCA, this helicopter "will provide intra-country transportation for the Royal family, Jordanian officials, visiting Heads of State, and other dignitaries." It will cost Jordan $21 million.
Capping the day, on May 5 DSCA also notified Congress of a pending sale to Japan of 17 V-22B Block C Osprey tiltrotor aircraft. Jointly built by Textron's (TXT) Bell Helicopter unit, and Boeing (BA), this single sale promises to generate $3 billion in revenue for the two companies to split.
Finally, on May 7 DSCA returned to Congress with one final arms deal to review. This one will go to Singapore, which is requesting that the U.S. upgrade its fleet of 60 F-16C/D/D+ fighter jets to the "Block 52" configuration. This effort, which will involve everything from installing new electronics to the supply of new bombs and missile launchers, is expected to generate $130 million in new revenues for the several contractors involved, including Lockheed Martin (LMT), the F-16's manufacturer.
The upshot for investors
In total, this week's DSCA-notified arms deals promise to add $3.614 billion worth of income to the export side of the U.S. trade balance -- and benefit several specific companies in particular.
Out of all these winners, Textron and Boeing shareholders are grinning widest this week, and can expect to reap roughly 8% operating profit margins on the $3 billion in revenue they stand to earn from the Japanese Osprey contract. But even for the smaller winners, every dollar helps -- and dollars won from international sales, may be the most important dollars of all.