3 Companies Profiting from the Biggest Defense Deal of 2014

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Boeing, Lockheed Martin, and Raytheon are set to share in an $11 billion arms sale to Qatar. Here's what they're selling -- and what they'll earn on the deal.

Transcript of 3 Companies Profiting from the Biggest Defense Deal of 2014

  • 3 Companies Profiting From the Biggest Arms Deal of 2014 Qatari fighter jets (center) flew alongside the U.S. and allies during Operation Desert Shield in 1991. Photo: Wikimedia Commons.
  • AH-64E Apache Longbow This is Boeings Apache attack helicopter. Qatar has been asking permission to buy it since July 2012. On Monday, the Pentagon said "yes. Qatar will purchase 24 Apaches, equipped with night vision, Hellfire and Stinger missiles, and Hydra rockets. Total value: $3 billion. Photo: Wikimedia Commons
  • In the market for attack helicopters, Boeing is an absolutely dominant force. And Boeing earns outsize profit margins on its military hardware. Boasting a respectable 7.2% operating profit margin on its sales generally, Boeing earns even bigger profits on arms sales 200 basis points bigger. 9.2% profit. That suggests Boeing could earn as much as $276 million on this Apache deal.
  • Patriot Missile Battery Here you see the Patriot anti-aircraft missile system, built jointly by Raytheon and Lockheed Martin. Qatar's spending most of its money on Patriots, acquiring 10 full missile batteries, 247 PAC-3 missiles, and 117 "Guidance Enhanced" Patriot missiles (GEM-Ts). Total value: $7 billion. Photo: Wikimedia Commons
  • Lockheed Martin is prime contractor on the Patriot PAC-3 anti-aircraft missile system. As such, it will win the bulk of the funds from this sale probably $5 billion in incremental revenue. Missiles are Lockheeds smallest business by revenue, but its most profitable by far. Lockheed earns 17.8% profit margins on missile sales. As such, this sale will have an outsized benefit on Lockheeds bottom line, generating as much as $890 million in profit.
  • Raytheon builds the most advanced Patriot variant, the GEM-T Patriot Guidance Enhanced Missile. Its profit margin on missiles Raytheons forte, and its biggest business by far are also not too shabby. 12.6%. So the $2 billion in revenues Raytheon reaps from the Qatari deal should yield profits in excess of $250 million.
  • Javelin Anti-Tank Missile Last and least, Qatar is picking up 500 Javelin light anti-tank missiles. Great for tank killing and bunker busting, a Javelin can even take down a low-flying helicopter (if it will just hold still long enough). Like the Patriots, they're built jointly by Raytheon and Lockheed Martin. Total value: $100 million. Photo: Wikimedia Commons
  • You can do the math. (Go ahead, try). Assuming an equal split on $100 million in Javelin revenues, this would mean an extra $6.3 million in profit for Raytheon, and $8.9 million more for Lockheed Martin. On an $11 billion contract, those are basically rounding errors, sure. But its still about $0.02 in extra earnings per share for Raytheon, and $0.03 per share for Lockheed Martin. In a close quarter, thats enough to produce a couple of earnings beats, easy.
  • And thats not all. $11 billion in arms sales is already a pretty big deal. But Qatar still needs to replace its fleet of aging French Mirage fighter jets maybe with some shiny new F-15s. Boeing? Think you can give them something better than this?
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