It's been five years since negotiators from the United States Department of Defense and their counterparts in Saudi Arabia inked the biggest defense deal ever. Covering everything from Black Hawk transport helicopters to Apache attack helos, and from F-15 fighter jets to Patriot missiles designed to shoot jets down, the arms deal was said to be worth at least $30 billion at its outset. Now it's getting even bigger.
Lockheed-built Littoral Combat Ship USS Fort Worth (LCS 3). Photo: Lockheed Martin.
As reported byReuters last week, the Saudi government is in "advanced discussions" to add two new "frigate" class warships to its shopping list. The latest evolution of Lockheed Martin's (NYSE: LMT) Freedom-class Littoral Combat Ships, America's new class of frigate, will feature:
- Better armor for "vital" areas of the warship than LCS warships currently carry
- Improved radar, electronic warfare, and sonar packages, as well
- SeaRAM missiles for defense against threats from the air
- Mk 38 25mm machine guns for fending off small-armed boats
- A new over-the-horizon antiship missile for offense
It's an impressive arsenal. So impressive that Saudi Arabia now wants it for its own navy -- and is not deterred by a proposed price tag that Reuters puts at "well over $1 billion."
Flush Saudis armed with credit cardsIn addition to the frigates, Reuters reports that Saudi Arabia comes to the Pentagon with a very long shopping list of military hardware they want to buy. On that list you'll also find 10 MH-60R Seahawk helicopters from Sikorsky.
Priced at $1.9 billion, those revenues could also flow to Lockheed Martin, which recently inked a deal to buy Sikorsky. Saudi Arabia's plan to double its fleet of 80 Sikorsky Black Hawk helicopters promises to add even more money to Lockheed's coffers, accelerating the speed at which the Sikorsky acquisition begins to "pay for itself."
And then there's the:
- $500 million worth of tank rounds, howitzer ammunition, rockets, and other munitions Saudi Arabia ordered in July
- $5.4 billion worth of new PAC-3 missiles for their Patriot air defense systems
- Potentially, a new Terminal High Altitude Area Defense (THAAD) anti-ballistic missile system (probably priced north of $1 billion for the system, but a relative bargain at just $23.5 million per interceptor missile)
When combined with the $30 billion that Boeing (NYSE: BA) should collect for selling the Saudis the 84 F-15 fighter jetsit already has on order and the $13 billion that General Dynamics (NYSE: GD) will charge to supply the Royal Saudi Land Forces with more than 3,000 Light Armored Vehicles, it's getting hard to keep up with all the numbers, as the credit card bill just climbs higher and higher.
The upshot for investorsOne thing is clear, however: The desert nation of Saudi Arabia is turning into perhaps the hottest arms market in the world. Maybe more than ever before, defense companies that want to grow their sales in a tight budgetary environment at home need to focus on capturing growth where sales are still growing. In closing, therefore, let's just remind you which of America's defense companies are doing the best job of cashing in on Saudi Arabia's -- and the world's -- unquenchable thirst for U.S. military hardware.
Per end-of-2014 financial reports from all the major players, as confirmed by data from S&P Capital IQ, here's how the major defense contractors stack up in terms of who gets the most business from customers abroad:
Source: S&P Capital IQ (NA = no data available). *Estimate includes revenues from Saudi Arabia only.
Once again, we're not including Boeing, Textron, or United Technologies on this list. The reason is because Boeing 787s, Textron business jets, and UTC elevators, although all lucrative products, are not aimed at the defense market. As such, they tend to skew these companies' international sales percentages, and make it harder to tell who's doing the best job of capturing international defensedollars.
UTC's sale of Sikorsky to Lockheed Martin will soon add the former company's international defense sales to the latter company's income statement. Once that happens, we'll be very curious to see if adding Sikorsky to the mix helps to lift Lockheed Martin out of fourth place -- and push it closer to the top of this list.
The article Meet the Military-Industrial Complex's BFF originally appeared on Fool.com.
Fool contributorRich Smithowns shares of Raytheon. You can find him on our public stock-picking service,Motley Fool CAPS, where he publicly pontificates under the handleTMFDitty-- and where he's currently ranked No. 269 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.
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