Defense News Roundup: The Pentagon Goes Christmas Shopping


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.

So what has the Pentagon been up to this week?

DoD is budgetedto 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.) A holiday-shortened week, however, appears to have had an outsized effect on Pentagon spending, as the generals put barely $1 billion on their credit cards through Friday.

And what did they get for their (read: "our") money? Actually, this week's spending pattern won't look at all unfamiliar to parents doing Black Friday Christmas shopping for the kids.

Santa? SOCOM wants a toy submarine ...
The week ended not with a bang but a whimper, when Defense Department contract officers awarded only a single contract Friday. Lockheed Martin was the beneficiary, winning $10 million from the U.S. Special Operations Command, which is leasing an S301i "dry submersible vessel" from Lockheed. SOCOM intends to use the vessel to test the utility of giving Navy SEALs a miniature submarine with which to attack the beaches.

... and the Navy wants a remote controlled airplane
got a similar "toy" contract of its own Wednesday. The U.S. Navy exercised an option worth about $9 million to the aerospace giant, instructing Boeing to supply it with a single Low Rate Initial Production Lot II RQ-21A "Blackjack" Unmanned Aircraft System.

Boeing's Blackjack. Source: Insitu.

Measuring roughly 8 feet by 16, the Blackjack is a small, prop-driven UAV that launches from catapult, reaches speeds of up to 90 knots, and can remain airborne for as much as 13 hours before needed to return to base. It does not carry weapons.

More drone money for Northrop
In more serious news, Northrop Grumman won a somewhat larger robotic drone contract. In addition to buying a robotic drone airplane from Boeing, the U.S. Navy anted up just under $14 million to pay Northrop to support its MQ-8B/C Fire Scout unmanned helicopters. The Navy has put several of Northrop's robo-helos into operational use already and is currently working with the defense contractor to develop a new-and-improved Fire Scout that can fly twice as far as the original, and carry three times the payload to boot.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's move on to one contract that may not yet be incorporated into defense contractors' stock prices.

On Monday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to upgrade South Korea's fleet of 134 KF-16C/D Block 52 fighter jets. Assuming Congress approves the deal, the Pentagon will task defense contractor BAE Systems with developing plans to upgrade the fighters' avionics, begin collecting necessary parts, and begin building facilities to perform the upgrades and test the systems when complete.

DSCA describes this project as just "phase 1" and puts its value at $200 million. If it proceeds, though, phase 1 would be preparatory to a phase 2 contract to do the actual upgrade work. This week's contract -- much less the presumably even bigger phase 2 award -- isn't yet on the radar for most investors. Because it hasn't been officially announced, and isn't common knowledge, few investors are factoring it into their valuations for BAE stock. Simply put, no one knows about it ... except that now, you do.

You don't always have to look far to find good investments. Sometimes, profiting from our increasingly global economy can be as easy as investing in your own backyard. And the Pentagon's helpful habit of publishing all its contracts daily as they're awarded certainly makes that easier for defense investors. Want to find more "easy to understand" investments? The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

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