Just a little more than 12 months remain in the Obama Administration. But here in his final year, the President appears to be finally getting serious about beefing up U.S. military forces in the Arctic Ocean to meet the challenge of Global Warming... and the challenge from Russia.
Need proof? Barely four months after promising to build a new icebreaker for Arctic missions, President Obama is now doubling down on his commitment -- and promising two shiny new icebreakers for the U.S. Coast Guard. As reported last week by The Wall Street Journal, Commandant Adm. Paul Zukunft has just announced plans for the U.S. Coast Guard to acquire two new icebreakers at a cost of $1 billion each.
Mathematically speaking, that works out to a doubling in the size of our existing icebreaker fleet, which currently comprises just two icebreakers: the 49-year-old heavy icebreaker USCGC Polar Star, pictured above, and the smaller, fresher USCGC Healy (just 17 years young).
Trouble in Santa-land
Up in the Arctic, these two icebreakers face off against a Russian fleet boasting 42 operational icebreakers -- with 14 more on the way -- helping to secure Russian claims to oilfields and trade routes through the gradually shrinking icepack. For the U.S. to have any hope of defending its own claims to Arctic oilfields -- or simply warding off Russian land grabs -- the Coast Guard simply must have more icebreakers -- and soon.
Unfortunately, U.S. efforts in this direction have been sadly lacking. Coast Guard officials estimate the time needed to build just one new icebreaker at eight to 10 years, and even that assumes proper funding for the effort. But according to legislators who follow this debate, Congress allocated only $4 million to icebreaker construction efforts in 2014, and just $8 million in 2015. At that rate, it would take closer to 80 years than eight to get even one icebreaker built.
"Billions for defense..." (two billions, to be precise)
This is why the new push to get new icebreakers built quickly is so important. In September, the President committed to getting at least one new heavy icebreaker built by 2020 -- in five years, not 10. Reportedly, the Coast Guard will request significant funding for this effort, and perhaps for building the second icebreaker -- as early as in the 2017 budget.
Who will get the loot? Until the Coast Guard issues its official request for proposals, it's difficult to say for certain. But as we outlined back in September, three big defense contractors seem best positioned to bid for the icebreaker contracts -- and the $2 billion in revenues that would come with them: Lockheed Martin (LMT 0.52%), which built the Polar Star, Huntington Ingalls, which built the Healy, and General Dynamics (GD 0.52%).
Of these, General Dynamics may not be not an icebreaker specialist per se, but it's apparently a favored contractor with the Coast Guard, which recently named General Dynamics a finalist in its competition to build a new fleet of Offshore Patrol Cutters for the service. Lockheed Martin and Huntington Ingalls, meanwhile, will need to convince the Coast Guard that, even though they've closed down the shipyards that actually built the Polar Star and Healy, they still possess the institutional knowledge to do a good job building new boats.
The upshot for investors
Here at The Motley Fool, we're as interested as anyone else in keeping up with developments in the military-industrial complex. But what we really enjoy is figuring out how these advances might affect investors' portfolios. So here's how we look at this Arctic story from an investing perspective:
Who will ultimately come out on top in this contest remains to be seen, but the competition is likely to be fierce. At stake for the winners will be not just the $2 billion in contracts that's needed to fund building the two icebreakers that the Coast Guard will ask for initially. Eventually, sources say a fleet of as many as six to 10 new icebreakers may be needed to fully equip the Coast Guard for its Arctic mission, costing perhaps $10 billion. Then, additional billions could need to be spent to "harden" up to 10% of the U.S. Navy's warships to support these vessels on their Arctic patrols.
In total, we could now be talking as much as $18 billion in new revenue for the winners. So the moral of this story for investors?
There's more than just oil to attract us to the Arctic. Icebreaker contracts could produce a lot of cold, hard cash, as well.