Saudi Arabia's Navy Arms Up -- With American Weapons

By Markets Fool.com


Raytheon's Phalanx gatling gun is gaining popularity in the Persian Gulf. Image source: Raytheon.

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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.

Kit up!
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 -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."

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Caution: Phalanx at work. Image source: Raytheon.

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.


Royal Saudi Naval Forces (RSNF) Patrol Chaser Missileboat. Image source:U.S. National Archives.

The article Saudi Arabia's Navy Arms Up -- With American Weapons originally appeared on Fool.com.

Rich Smithowns shares of Raytheon. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 270 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.