The Persian Gulf is a funny place.
Five months ago, in the run-up to signing the Iran nuclear weapons treaty, Iranian Revolutionary Guard forces embarked upon a series of high-profile raids upon commercial shipping in the Gulf, attacking first a Marshall Islands-flagged cargo ship operated by Denmark's Maersk Group, then a U.S.-flagged vessel also operated by Maersk, and finally chasing the Singapore-flagged Alpine Eternity into Emirati waters.
These attacks almost seemed calculated to derail the nuclear negotiations (but didn't). One thing they did accomplish was to push Saudi Arabia to seal a deal to buy 10 new MH-60R Seahawk maritime helicopters from U.S. defense contractor Sikorsky. Those helicopters will give the Saudis extra ability to monitor Iranian ship movements in the Gulf. Incidentally, the sale will also bring about $1.9 billion in new revenues for the U.S. defense contractors, including United Technologies (NYSE:RTX), which owns Sikorsky.
Or not. Last month, we learned that U.S. regulators have given the green light for defense giant Lockheed Martin (NYSE:LMT) to buy Sikorsky from United Technologies in a $9 billion deal slated to close either late this year or early next. Depending on when the Seahawk sale actually closes, these revenues could accrue to the benefit of Lockheed Martin rather than United Technologies.
What's more, these won't be the only revenues Lockheed can count on getting out of the Sikorsky deal. Because on Tuesday, Saudi Arabia requested permission to make another purchase of helicopters from Sikorsky.
Once more, with feeling
This time, Saudi Arabia will be buying nine UH-60M Black Hawk helicopters -- a close cousin to the Seahawk, but apparently cheaper, at a stated value of just $495 million. Like the Seahawk deal, the Black Hawk purchase was notified to Congress by the U.S. Defense Security Cooperation Agency, the arm of the Pentagon responsible for coordinating foreign military sales contracts between U.S. defense contractors and foreign buyers.
According to DSCA, Saudi Arabia hopes to buy nine Black Hawks from Sikorsky, 18 General Electric T700-GE-701D helicopter engines to power them, three spare engines, and a whole slew of electronic equipment to be built into the helicopters.
On the other hand, missing from the Black Hawk sale, but present in the Seahawk sale, will be orders for 380 Advanced Precision Kill Weapons System rockets and 38 Hellfire missiles (also built by Lockheed). These extra weapons systems may help to explain why the Seahawk deal was so much more expensive than the Black Hawk deal.
What it means to investors
With $1.9 billion here, $495 million there -- pretty soon, Saudi Arabia will be forking over "real money" to beef up its military. What's more, this is only the beginning of the loot that Lockheed Martin can expect to collect from its Sikorsky purchase. Reportedly, Saudi Arabia's ultimate plan is to double the size of its Black Hawk fleet. And since that fleet currently numbers "only" 80 Black Hawks, that means there are probably a good six dozen more Black Hawk sales in Lockheed Martin's immediate future.
At roughly $55 million apiece, that means roughly $3.9 billion in revenue on top of what the Seahawks and Black Hawks, already on order, will bring. All together, this adds up to about $6.3 billion in helicopter sales for Lockheed Martin -- or more than two-thirds of the price Lockheed Martin has agreed to pay United Technologies to acquire Sikorsky.
It's starting to look like this deal will very soon pay for itself.