Big US firms, Lockheed Martin and Boeing to reap big profits from Saudi contracts

Lockheed Martin Corp. and Boeing Co. will reap billions from Saudi contracts subsequent to President Trump's announcement that the Saudis will buy up to $110 billion in American weapons.

Speaking at a conference in New York last Wednesday, Marillyn Hewson CEO of Lockheed Martin Corp. said she could see the company gaining up to $28 billion in new business from the Saudis. Dennis Muilenbege CEO of Boeing Co. also hopes to profit from sales to the Saudis of more than $50 billion for both military and commercial sales. Often these deals involve long term maintenance and sustainment contracts that can run up to 30 years. Typically these contracts make up 70 percent of the total value of sales.

Foreign weapons sales can often take a long time to negotiate and also a lengthy period before delivery. Congress has to be notified of the deal and this can often result in objections as is this case with this deal. Six House representatives consisting of both Republicans and Democrats have introduced a resolution of disapproval that would block the proposed sales of precision-guided munitions and other offensive weapons to the Saudis.

Congress was notified of the proposed sales, as part of a larger arms deal with Saudi Arabia reportedly worth $110 billion, on May 19. Representative Amash a Republican from Michigan one of the sponsors of the bill said: “Saudi Arabia has one of the worst human rights records and has supported many of the extremists terrorizing the people of the Middle East and the world.

These arms sales extend a reckless policy from the Obama administration and prior administrations, and they come at a time when the Saudi government is escalating a gruesome war in Yemen.” Mark Pocan a Democrat from Wisconsin also spoke for the bill: “President Trump’s proposed $110-billion weapons sale sends the wrong message to Saudi Arabia. In addition to regularly dropping U.S. bombs on Yemeni civilians, Saudi Arabia appears to have every intention of using the U.S. weapons from this sale to enforce a blockade on Yemen that prevents food and medicine from reaching millions of people on the brink of starvation.For months, my colleagues and I have been demanding answers to the most basic questions on the U.S. role in the disastrous war in Yemen and have been met with deafening silence from the White House. As we introduce a resolution of disapproval against this unprecedented weapons sale, we are concerned about U.S. complicity in the world’s largest humanitarian crisis now consuming Yemen. Our bipartisan group of lawmakers will be urging our colleagues to take seriously our constitutional duty to vigorously debate the merits of arming the Saudis even further.”

I expect that the profits that the sales will bring to the likes of Boeing and Lockheed Martin will outweigh concerns about the use to which Saudi will put the weapons. Obama supported the Saudi sales ultimately and Trump will do so as well but with not the slightest complaints about their use by the Saudis.

Senators Rand Paul a Republican from Kentucky and two Democrats including Al Franken from Minnesota have introduced identical legislation in the Senate too that in the House. Under the Arms Export Control Act of 1976 a senator is able to force a vote on arms sales. This cannot be done in the house.

Even if the weapons deal passes Congress, contracts need to be drawn up between manufacturer and the country before manufacturing begins. Payment typically begins when a contract is signed with a future payment when the unit actually reaches an assembly line. There is a final payment when a unit is actually delivered followed by sustained payments.

In 2013 the Saudis received permission to buy 25 C-130 planes some as tankers and some a cargo haulers. But so far just two have been bought with the remaining 23 probably failing under the new deal. The Lockheed CEO said that the Saudis are seeking four multi-mission warship. Lockheed is proposing they but a variant of its Littoral Combat Ship. Lockheed also agreed it would form a joint venture that would support the completion and finally assembly of 150 S-70 Black Hawk utility helicopters. CEO Hewson also said that Lockheed's THAAD and PAC-3 missile systems could be on the Saudis shopping list. The appended video lists other items.

The U.K. also sells a substantial amount of weapons to the Saudis. A report on foreign financing of terrorism due to be released in the spring of 2016 has not yet been finished and apparently may never be made public due to its "sensitive" contents. It may be too sensitive for the U.K. government that recently approved 3.5 billion pounds worth of arms export licenses to Saudi Arabia. The report apparently focuses on the role of Saudi Arabia in financing terrorism.

Bahrain: Buying news in the U.S.

 In November the Washington Times posted an article favorable to the Bahraini regime. The article was written by a former U.S. 5th fleet commander who later became a Lockheed Martin executive.
  It turns out that the article was placed in the Times at the request of the Sanitas lobbying which works on behalf of the Bahrain government. The article urged the U.S. government to support the Bahraini government in cracking down on pro-democracy protesters in Bahrain. While deploring the violence the U.S. in effect did support the crackdown and said nothing against the sending of GCC troops into Bahrain to help quash the protests.
   The Washington Times did note that the commander Admiral Charles Moore worked for Lockheed Martin and that the company  sells  hundreds of millions in arms to the kingdom but they failed to mention that the article was placed at the request of  the lobbying firm Sanitas. Sanitas is paid 15,000 per month to lobby on behalf of the firm. Surely, the public should have been informed about that as well. This was not an opinion piece so much as an infomercial. For more see this article.

Which companies win and lose in the US defense budget?

Some of the biggest players such as Lockheed do not fare all that well whereas a lot of niche players that provide for new hi tech weapons such as drones will s oar into the stratosphere! It is clear that far from suffering from the recession the defense budget is enjoying a surge. This is from Reuters.


Which defense firms will get lift from budget?
Karen Jacobs
ATLANTA

On Monday, President Barack Obama asked Congress to approve $708 billion in defense spending for fiscal 2011, including a 3.4 percent rise in the Pentagon's base budget plus billions more to fund U.S. military operations in Iraq, Afghanistan and Pakistan.

Defense stocks, which have been clouded by concerns that growth in U.S. spending will slow in coming years, headed lower on Wednesday after two straight days of gains. The Standard & Poor's Aerospace & Defense Index was off a modest 0.2 percent in afternoon trading.

Analysts say niche companies will benefit more than others as the Obama administration seeks to fight new enemy threats while traditional weapons programs face more scrutiny.

BUY SPECIALTY

Small companies that provide next-generation systems and upgrades for unmanned systems and products that gather or monitor intelligence are poised for success, said Michael Ciarmoli, an aerospace and defense analyst with Boenning & Scattergood.

"That portion of the budget seems to be insulated," Ciarmoli said. "Seemingly, these companies are in the sweet spot."

His top picks for 2010 include Comtech Telecommunications (CMTL.O), a provider of mission-critical tracking networks, satellite company Orbital Sciences (ORB.N) and FLIR Systems (FLIR.O), which makes cameras used in unmanned spy planes.

Patrick Murphy, an analyst with FBR Capital Markets, said the latest budget request provided upside for so-called "Army plays," prime contractors such as missile maker Raytheon Co (RTN.N) and L-3 Communications (LLL.N), which provides products that detect explosives.

"With this budget, the Obama administration and (Department of Defense) are clearly recognizing that defense spending needs to stay high," Murphy said.

SLOWER GROWTH FOR SOME BIG PLAYERS

Companies in FBR's coverage space that fared the worst because of the budget were industry leader Lockheed Martin Corp (LMT.N) and AeroVironment (AVAV.O), the firm said.

Peter Arment, an analyst with Broadpoint AmTech, said growth would slow for some big contractors because of a flat outlook for weapons-modernization spending.

Broadpoint AmTech maintained a "buy" on Raytheon, but said it was still on the sidelines for General Dynamics (GD.N) and Lockheed, which faces pressure over its F-35 Joint Strike Fighter, the world's largest military aircraft program.

This week, U.S. Defense Secretary Robert Gates said that he would dock Lockheed $614 million in performance fees because the F-35 program's performance had not met expectations over the past two years. Gates also replaced the Pentagon's manager in charge of the program.

"Lockheed is highly respected and we certainly think its valuation is very cheap," Arment said. But, he added, "The JSF has slipped in terms of timing and we're not seeing the earnings progression that we'd like to see."

(Reporting by Karen Jacobs. Editing by Robert MacMillan

If Acorn goes down will Lockheed Martin and Northrop Grunman be next.?

Somehow I doubt that Glenn Beck will be presenting with any revelations about this corruption. The constituencies are much more important and besides it is not clear how he would be able to bring in outrage at promoting underage prostitution. The corruption in these cases involves contract violations which although they may end up costing the taxpayer a great deal of money spent for no value does not have the shock value of the corruption revealed at Acorn. If I were a gambler I wouldn't bet a cent that either of these giants will be punished by not receiving any further contracts!


If Acorn Goes Down, So Might The Military-Industrial Complex?

Here's a shout-out to Ryan Grim who first noted the delicious irony when the House of Representatives last week rammed through a motion to defund Acorn, whose roughly 1,200 chapters serve as advocates for poorer communities. That was the culminating moment after a weeklong orgy of cable hysterics after a couple of undercover conservative activists began posting a series of embarrassing tapes showing Acorn field office reps offering advice how to evade the law. With Republicans smelling blood and Democrats cowering under their seats, the House passed the proposal with broad bipartisan support to strip government funding for the organization. But as Grim noted, the wording in the legislation was so broad that the provision also applies to "any organization that has been charged with breaking federal or state election laws, lobbying disclosure laws, campaign finance laws or filing fraudulent paperwork with any federal or state agency. It also applies to any of the employees, contractors or other folks affiliated with a group charged with any of those things." That covers a lot of territory. Turns out the bill was drafted so as to target groups which may have had run-ins similar to those chronicled in the recordings. But let's recall that several big contractors have had run-ins with the law where their employees were charged with fraud. Here's the Federal Contractor Misconduct Database which lists the names of contractors who have histories of misconduct. It's a veritable Who's Who of Corporate America. As the Project On Government Oversight points out, "Lockheed Martin, which has 11 government contract fraud instances, or Northrop Grumman with 9 contract fraud instances including this $325 million False Claims Act settlement from earlier this year." By contrast, Acorn is said to have received a total of $53 million in federal funds since 1994. Bad behavior doesn't excuse other bad behavior but there was no shortage of schadenfreude as the news spread. Liberal bloggers, who had watched with horror as Acorn was turned into Enemy No. 1 by conservative television and talk show hosts, lost no time pointing out the potential contradictions and, well, yes, hypocrisy. On Pacific Views, one blogger pointed out that the courts could reference the list to vet companies in deciding whether it's legal to award them government funds. What's more, the blog noted, if this law only applies to Acorn, it's going to have an impossible time standing up in court. The reason? "Because it would otherwise be a bill of attainder which is explicitly barred by the Constitution." If this plays out as liberal critics of the House vote believe, then the anti-Acorn bill might have the inadvertent effect of forcing the U.S. government to sever ties with most of the big contractors it's worked with for decades. My guess is that the phone lines to Washington are going to be quite busy over the next several days.
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