Ouch! That had to hurt.

On Tuesday, the word came down, finally and definitively from the Czech Ministry of Defense: The Central European nation will not buy $1.3 billion worth of Pandur II armored personnel carriers (APCs) from General Dynamics' (NYSE: GD) Steyr Daimler Puch Spezialfahrzeug subsidiary.

This contract, three years in the making, became a political football (presumably of the round variety) in the Czech Republic's recent parliamentary elections. The outgoing administration had agreed to go forward with the deal, but upon entering office in mid-2006, the new guys objected to it. Alleging delays in delivery and design defects, the Defense Ministry threatened to cancel the contract last month, and carried through with the threat this morning.

What defects, you ask? I don't know the details, but reading through the specs on the Czech version of Steyr's APC (the Pandur II CZ), I have suspicions. Traveling on wheels rather than tracks, the basic Pandur II resembles General Dynamics' well-received Stryker APC. That vehicle was, in fact, designed by General Motors (NYSE: GM), but General D bought the Stryker business from General M a few years back.

The Pandur II CZ has an interesting quirk -- it was designed with a reverse-V bottom, the opposite of the V-shaped bottoms that have become all the rage since Force Protection (Nasdaq: FRPT) invented them. Everyone from Spartan Motors (Nasdaq: SPAR) to BAE Systems to Navistar began copying the design. The V-shaped hull is designed to deflect mine and IED blasts away from the vehicle and the crew inside, but the reverse-V design tries to contain the blast and keep it from ... hurting the tires. Hmm ... valuing tire rubber over human lives, who'd-a-thunk that idea wouldn't fly?

Foolish takeaway
Forgive my diversion, investors. What you really want to know is who benefits from this news and who doesn't. Obviously, the loss of $1.3 billion in revenue hurts General D. But at 5% of annual revenue, stretched over a multiyear contract, it doesn't hurt that much (as reflected in today's stock price).

In contrast, helped by the news will be Finland's Patria Oyj, which bid against the General for this contract and lost. Chances are Patria will get another shot at the contract now that the General has been bounced. Also benefiting is European defense conglomerate EADS, which owns a 27% stake in Patria.

The wild-card winner could be Lockheed Martin (NYSE: LMT). Lockheed has teamed up with Patria to design a replacement for the U.S. Marines' light armored vehicle, Textron's (NYSE: TXT) LAV-300, the Marine Personnel Carrier (MPC). The more business Patria gets, the bigger its scale of production. And the more scale it has, the lower its production costs -- which could help it, and Lockheed, when bidding on the MPC.

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