From chasing down and firing on commercial shipping vessels, to conducting live missile firings in close proximity to U.S. aircraft carriers, to actually seizing and holding U.S. naval boats, Iran's military has been behaving pretty badly since its government signed its nuclear arms deal last year.
To date, the U.S. hasn't elected to take any reprisals for these actions -- but Saudi Arabia, for one, isn't prepared to sit idle.
Last year, as you may recall, Saudi Arabia announced the formation of an Islamic military alliance in the Persian Gulf region. Ostensibly, the purpose of that alliance is to combat ISIS. But fighting ISIS doesn't seem to be Saudi Arabia's only goal.
Case in point: Last month, the U.S. Defense Security Cooperation Agency (DSCA) notified Congress that Saudi Arabia has requested permission to upgrade its five Raytheon (NYSE:RTN) -built MK 15 Phalanx Close-In Weapons Systems (CIWS) from their current "Block 0" configuration to the more advanced "Block 1B Baseline 2" configuration.
According to Raytheon, the Phalanx CIWS "is designed to defeat anti-ship missiles and other close-in air and surface threats." The Block 0 weapons that Saudi Arabia already possesses are able to detect, track, and evaluate potential threats -- then engage and destroy them if necessary. Block 1B upgrades will add the ability to "visually track and identify targets before engagement," and also provide a night-fighting capability through the addition of forward looking infrared (FLIR) sensors. Raytheon says the improved version enhances the weapon's utility "against helicopters and high-speed surface craft at sea."
For a country concerned primarily with land-bound ISIS terrorists -- who lack either a navy or an air force -- that's a curious mission profile. But for a country concerned with Iran's increasing bellicosity in the Persian Gulf, these upgrades are a logical purchase.
According to the DSCA, Saudi Arabia "has been, and continues to be, an important force for political stability and economic progress in the Middle East," but needs to improve its weapons "as a deterrent to regional threats." Saudi Arabia will install one of the guns at its Naval Forces School. The remaining four weapons will each service a U.S.-built Royal Saudi Naval Forces Patrol Chaser Missile (PCG) Ship. This will give the RSNF ships defensive capabilities similar to those of U.S. Navy vessels. According to Raytheon, "all U.S. Navy surface combat ship classes" carry the Phalanx.
What it means to investors
According to DSCA, Raytheon will serve as prime contractor on the sale, which is estimated at $154.9 million in value.
Is it a huge sales win for Raytheon? No. Given that the company's annual sales exceeded $23 billion in 2015, the Saudi Arabian purchase will amount to less than 1% of revenues.
That said, the Middle East is an important market for Raytheon, accounting for nearly 15% of its worldwide sales. Last month's deal with Saudi Arabia is a small but significant piece of that sales puzzle -- and one more deal ensuring that Raytheon will remain the U.S. defense contractor with the widest global reach.
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