Dithering Congress Endangers Defense Contractors

The U.S. Congress has a chance to secure a near-quarter-billion-dollar arms contract for American companies -- but it must act quickly.

As we reported back in August, the government of Taiwan is in talks with the U.S. to purchase four aging U.S. Navy frigates -- the Perry-class vessels USS Taylor (FFG-50), USS Gary (FFG-51), USS Carr (FFG-52), and USS Elrod (FFG-55). If Congress approves the sale, it could add upwards of $230 million to U.S. defense coffers -- money that could be reinvested in more modern warships such as the Navy's growing fleet of Littoral Combat Ships, and its new line of ultramodern Zumwalt-class stealth destroyers.

An artist rendering of the Zumwalt-class destroyer DDG 1000, a new class of multi-mission U.S. Navy surface combatant ship designed to operate as part of a joint maritime fleet, assisting Marine strike forces ashore as well as performing littoral, air, and sub-surface warfare. Photo: U.S. Navy. 

Taiwan will need to retrofit and upgrade the vessels after purchase, too, work that would presumably be done by General Dynamics' Bath Iron Works, one of the vessels' original builders, and Lockheed Martin , which makes some sweet AN/SQR-19 Towed Array Sonar systems that Taiwan has its eye on. Congress took up legislation to approve all of this last month, and a Senate committee has already signed off on the sale -- but the rest of the government is taking its sweet time approving the deal, and time is running out.

As DefenseNews.com reported this week, Taiwan has committed to buying only two of the vessels (buying in 2014, and taking delivery in 2015). While the Taiwanese would really like to buy all four to help replace its obsolete Knox-class frigates (also built for them by the U.S.), the country's defense ministry worries that budget constraints may make buying all four unaffordable.

The USS Carr (FFG 52), one of the frigates that Taiwan might buy. Source: Wikimedia Commons.

Thus, we may be dealing with a case of accelerated buyer's remorse. This alone should motivate Congress to secure a sale as soon as possible, before Taiwan rethinks its purchase. But adding urgency to the negotiations, Taiwan may be having second thoughts already.

Taiwan's warship-building industry was hit hard in 2002, you see, after it completed work building eight Perrys for itself, under license. Now the Taiwanese are wondering whether it might not be smarter to build Sea Swift corvettes locally, than spend its defense dollars buying U.S. Navy hand-me-downs.

Congress has a chance to head off this Taiwanese rethink, to secure valuable contracts for U.S. defense contactors, and much-needed funds for our own defense purchases. But it must act quickly to do so. Dithering here is not an option.

Zig when the market zags
Taiwan's defense purchases are aimed squarely at the perceived threat from China. Indeed, Taiwan nicknames its Sea Swift corvette the "Chinese Carrier Killer." But for stock investors, China holds easily as much opportunity as it does peril. To cite just one example, there's a boom under way in the Chinese auto market, where sales are already taking off. As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this brand-new Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

The article Dithering Congress Endangers Defense Contractors originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics and Lockheed Martin. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story