Well, it's official now. Egypt is getting an aircraft carrier.
Actually, two aircraft carriers. Earlier this month, we told you about Egypt's plans to buy both of the Mistral-class amphibious assault ships France had been trying to sell to Russia -- then refused to sell after Russia invaded Ukraine.
At that time, France had only confirmed that Egypt presented one of multiple "serious options" for offloading its aircraft carriers. Other nations, including the United Arab Emirates and Canada had also expressed interest. But last week, the French defense ministry confirmed that Egypt will indeed acquire both Mistrals for a purchase price of $1.1 billion. And Egypt may not stop at just two...
What is a "Mistral"?
Sometimes classed as "helicopter carriers," or even small aircraft carriers, each 16,500-ton Mistral warship is capable of carrying:
- 16 combat helicopters
- up to 40 tanks
- 900 assault troops
- a combination of the above three
While some might quibble that helicopter carriers aren't true "aircraft" carriers (China begs to differ), this is still pretty significant news. Historically, no Middle Eastern nation has possessed an ability to project naval air power overseas. Turkey was supposed to be the first, with its recent announcement of a $1 billion deal to have Spain build it a Juan Carlos I-class lightaircraft carrier. But that warship won't be built before 2021.
If all goes as planned, Egypt could leapfrog Turkey, accepting delivery of its two Mistrals as soon as March 2016.
Reportedly, Egypt plans to put both warships to use combating insurgents on its Sinai peninsula, bracketing the rebels with one Mistral stationed to the north in the Mediterranean Sea, and another in the Red Sea to the south. Incidentally, those stations will put Egypt's new aircraft carriers in position to threaten Israel as well, and to conduct other missions, such as defending Egypt's newfound gas fields off its northern coast, and supporting the Arab coalition currently battling Houthi rebels in Yemen.
Two's company, three's a fleet?
By acquiring not one, but two brand-new aircraft carriers, Egypt instantly becomes a force to be reckoned with in the Arab world -- the first and (for the next five years) only country boasting a carrier fleet. And Egypt may not stop at just two carriers; it may already be preparing to purchase a third.
Take another look at those stats up above. Each Mistral has the capacity to carry 16 combat helicopters on its deck. But we learned last week that Egypt is also Russia's fleet of 50 attack helicopters, which it was already building to embark upon the Mistrals.
Specifically, Egypt will purchase 50 Ka-52K Alligator gunships -- a maritime version of Russia's new combat helicopter designed to replace its dreaded Mil Mi-28 Hind attack helicopter. Able to fly at night and in day, and also in adverse weather conditions, each Ka-52K boasts:
- Armor plating to resist ground fire
- See-in-the-dark thermal optics for night attack
- Two side-mounted cannons
- Six wing-mounted hardpoints for air-to-air, air-to-ground, and antiship missiles.
In what's likely to amount to a $1.2 billion purchase, Egypt is buying 50 of these helos. That's many more than just two Mistral aircraft carriers can carry -- but would be just the right number to fill up the flight decks on three Mistrals.
What it means to investors
Separately from the carrier-related contracts, we also have word from DefenseUpdate that Egypt is buying an unspecified number of Patroller medium altitude, long endurance (MALE) drones from French defense company Sagem. While the value of this last contract is unknown, the contracts we do have good information on are already adding up quick.
What it all means to investors
Tally it up. So far this year, purchases of 24 Rafale fighter jets and one French frigate for $5.7 billion, plus $1.1 billion for the Mistrals, plus $1.2 billion for the helicopters, and you end up with $8 billion in arms purchases by Egypt. This is on top of last year's purchase of four French Gowind Combat Corvettes (adding $1.4 billion to the shopping bill). Add some Patroller drones to the mix, and we're rapidly approaching $10 billion in combined armed sales to Egypt in the space of about one year.
To put that in context, $10 billion is more than twice Egypt's supposed annual defense budget, as calculated by GlobalFirepower.com. This sounds like it should be a difficult pace of spending to maintain, but it may not be.
Recall that last month, Italian oil giant Eni (NYSE:E) discovered a "super giant" natural gas field just off of Egypt's Mediterranean coast. Dubbed the "Zohr Prospect," the field is believed to contain as much as "30 trillion cubic feet of natural gas, equivalent to 5.5 billion barrels of oil," making it "the largest [gas field] ever found in the Mediterranean Sea."
S&P Capital IQ data show that this discovery should more than double Eni's proven gas reserves. Simultaneously, Eni notes that the discovery will satisfy Egypt's gas needs "for decades." It will also provide revenues that could fund years of military buildup for Egypt. At current world gas prices of roughly $2.50 per 1,000 cubic feet of natural gas, Zohr's contents could be worth as much as $75 billion.
That's a lot of capital Egypt now has available to pour into defense spending over the coming years. Egypt's arms race has only just begun -- and defense contractors may have just found a new favorite customer.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 249 out of more than 75,000 rated members.
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