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Who Wants to Buy $3.6 Billion Worth of American Military Equipment?

By Rich Smith – May 10, 2015 at 10:08AM

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The better question may be: Who doesn't?


Lockheed Martin F-16 fighter jet -- the best selling fighter jet in the world. Photo: U.S. Air Force.

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.


Presto SaladShooter's unintentionally ironic tag line: "Just point and shoot!" Source: National Presto.

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).


Deadly in air-to-air combat, the AIM-9X Sidewinder is perhaps Raytheon's most famous missile. Photo: Raytheon.

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.


The UH-60 Sikorsky Black Hawk is the top-selling military helicopter in the world. Photo: United Technologies.

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.


By land or by sea, at home and abroad, Bell-Boeing's V-22 Osprey is becoming a hot commodity. Photo: Bell Helicopter.

Rich Smith owns shares of Raytheon Company. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 327 out of more than 75,000 rated members. 

The Motley Fool owns shares of General Electric Company and National Presto Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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