President Donald Trump says he wants to "make America's military strong again" -- but first things first. Before we get around to strengthening America's military, we need to export a few weapons to our allies.
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And so it was that on the very first day of the Trump Administration, the U.S. Defense Security Cooperation Agency (DSCA) notified Congress of plans to sell $1.3 billion in weapons systems to U.S. allies around the world. The sales comprise four separate contracts, beginning with...
President Trump's international deal-making is more than just hot air -- as demonstrated by an imminent sale of military blimps. Image source: Lockheed Martin.
Saudi Arabian blimps
The largest of the four contracts that the DSCA notified Congress of on Monday, Jan. 23, 2017, concerns the sale to Saudi Arabia of 10 Persistent Threat Detection System (PTDS) aerostats. Equipped with ground moving target indicator radars, see-in-the-dark electro-optic infrared cameras, and communications intelligence Sensors, these floating eyes in the sky will "improve the security of an important ally," says DSCA.
No prime contractor has yet been named on the contract, and several defense contractors (including, most infamously, Raytheon (NYSE: RTN)) are known to manufacture such spy blimps. PTDS, however, is a Lockheed Martin (NYSE: LMT) product, and it seems likely that Lockheed Martin will receive the bulk of the revenues from this contract.
Rockets for Kuwait
Raytheon won't be entirely left out of the foreign military sales contracting fun, though. In a $110 million deal, DSCA notes that Kuwait also wants to buy 60 AIM-120C-7 AMRAAM medium-range air-to-air missilesfor its 27 F/A-18C fighter jets. (Late last year, Kuwait also inked a deal with the Obama Administration to acquire 40 new F/A-18 fighters from Boeing (NYSE: BA) in a transaction worth $10.1 billion).
Raytheon will serve as principal contractor on the missile sale.
Helicopters -- also for Kuwait
A third pending defense contract also involves Kuwait. This one is a $400 million deal to provide the Kuwaiti military with support equipment and services for its fleet of Boeing AH-64D Apache attack helicopters. Maintenance equipment, training devices, helmets, simulators, generators, and other devices are all incorporated into this deal.
Given the wide variety of equipment included, DSCA had trouble picking just one contractor to serve as "prime" on this deal, but Boeing, Lockheed Martin, Northrop Grumman, and others are all said to be "potentially involved in the sale." As the Apache's manufacturer, it's likely that Boeing will ultimately receive the bulk of the revenue here.
C-17s for the UK
Finally, DSCA notified Congress of a fourth contract that gives Boeing an unqualified win -- $400 million in payment for providing "continued logistics support" to Britain's eight C-17 transport aircraft. This deal will have Boeing performing upgrades on C-17 antennae and communications systems, as well as the planes' "three special operations loading ramps."
What it means for defense investors
Now, does all of the above deal-making mean that Donald Trump has begun making American foreign arms sales great again? Not necessarily -- but not because the deals might not go through.
You see, the DSCA notification processis designed to eliminate the possibility that a foreign government, wanting to buy American arms and approaching Congress for permission to do so, might suffer the embarrassment of being turned down on a request. (As a result, in all of recorded history, no DSCA-notified weapons sale has ever been denied by Congress). When the U.S. State Department receives such a request, it spends considerable time conferring with Congress before ever giving DSCA the go-ahead to "officially" notify Congress that the request has been made. Once that notification has been made, it's essentially guaranteed to go through. But this also means that the initial request to buy all of this military hardware and services must have been made during the Obama Administration, reviewed and discussed extensively under the previous administration, and only finally approved after Mr. Trump took office.
(Speaking of which, we should mention here that one day before President Trump's swearing in, Congress was notified of a fifth contract -- a $418 million contract to sell the Kenyan Defense Forces 12 Air Tractor AT- 802L prop-driven fighter planes, and a pair of AT-504 trainer aircraft, for which L-3 Communications (NYSE: LLL) will serve as prime contractor. Although DSCA did not publish its notification until Jan. 23 -- the same date the four sales above were notified -- it says it actually notified Congress of this sale on Jan. 19.)
That being said, it seems highly unlikely that $1.3 billion in foreign arms sales (or $1.7 billion, if you count the L-3 deal) being approved on the very first full working day of the Trump Administration happened by accident. Just because President Trump didn't tweet about the sales doesn't mean he didn't approve of them. My hunch is that the next four years could be very good years for defense contractors striking arms export deals -- and making defense companies' profits great again.
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