Pentagon Watch: Where Did Your Tax Dollars Go This Week?


The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen.)

As you may recall, though, the Pentagon went a wee bit over budget a few weeks back. Ever since, it's been on a financial diet. In fact, last week, the Pentagon spent barely half as much as you might expect -- less than $3.3 billion. Here's where (some of) that money went.

A true monster of a contract
On Thursday, General Dynamics landed a $67.4 million follow-on contract for its popular Hydra-70 rocket. A standard armament for U.S. attack helicopters, and some warplanes as well, the Hydra is in use by multiple militaries around the world, including our own. General Dynamics has been building Hydras since 1996.

USMC Cobra attack helicopter firing Hydra rockets in training, Source: Wikimedia Commons.

This week's award is an add-on to a pre-existing contract, which, according to DoD, has now accumulated more than $1 billion in orders.

Get those planes airborne!
Thursday also saw a significant contract win by another military "general." General Electric was awarded an $87 million contract to deliver to the U.S. Navy 22 F414-GE-400 turbofan engines for installation on Boeing F/A-18E/F "Super Hornet" fighter aircraft. These are standard equipment aboard the Super Hornet.

"Get those birds airborne"?How do you say that in Italian?
Meanwhile, Boeing-rival Lockheed Martin won a warplane contract of its own. Thursday saw the Pentagon authorize $70.4 million in "long-lead" purchases by Lockheed, preparatory to that company's building seven conventional take-off and landing F-35A fighter jets, and one short take-off, vertical landing variant F-35B fighter. All eight planes are on order by the Italian Air Force under a foreign military sales contract.

How much does IT cost?
On Friday, the Pentagon opened up a firm-fixed-price, multiple-award, task-order contract under its Information Technology Enterprise Solution-2 program, or ITES-2S, allocating $494 million in funds to pay for Army IT hardware and software purchases. ITES-2 is a program that simplifies and streamlines the process for buying IT hardware and software for the Army. The Pentagon gave Dell, IBM , and four privately owned companies the right tobid on individual "task orders" placed under ITES-2S, as and when the Army puts such mini-contracts up for bid.

Opportunities on the horizon
That's a quick summary of some of the more important contracts awarded over the past few days. But what about future contract wins? You know -- the ones that aren't already priced into the stocks of the defense contractors? The ones that investors might actually have a chance of profiting from -- by buying ahead of the crowd?

Actually, there was one of those this week, too. Just as the week was winding down Friday, the U.S. Defense Security Cooperation Agency revealed that it has just sought approval from Congress to sell the Republic of Korea (that's South Korea) some 260 AIM-120C-7 Advanced Medium Range Air-to-Air Missiles, commonly referred to as AMRAAMs.

Navy AMRAAM missiles -- a lot bigger than a Hydra, Source: Wikimedia Commons.

South Korea plans to arm its Lockheed KF-16 and Boeing F-15K with the missiles, in part in order to "deter aggression in the region." (Three guesses whom they're aiming to deter). If the deal goes through, it could be worth as much as $452 million to prime contractor Raytheon .

Mind you, no contract has yet been signed on this deal. It hasn't been officially announced yet, and most investors aren't factoring it into their valuations of Raytheon. No one knows about it -- except that now, you do.

Boeing operates as a major player in a multitrillion-dollar defense market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. The Fool's premium research report on the company provides investors with the must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.

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Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics, General Electric, IBM, Lockheed Martin, and Raytheon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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