U.S. Sells $1.9 Billion Worth of Bombs, Missiles, and 'Smart Bomb' Kits to Israel

America Sells Israel 32,100 High-Tech Bombs and Missiles. 3 Guesses Why...

Geopolitics aside, from an investor's perspective, the great thing about a bomb is that once you drop it... you need to buy another bomb! 

May 31, 2015

Motley Fool - What if they held a war and everybody (in the Middle East) came? Lately, that seems to be what we're seeing happen in the Middle East.

They've got Houthis running amok in Yemen, with Saudi fighter jets screaming overhead, and Iranian warships trying desperately to get into the mix. Freedom fighters battling Bashar in Syria, and fighting ISIS, besides. More ISIS in Iraq. And even more ISIS in Libya. Al-Qaeda, meanwhile, is... everywhere.
And into this mess steps Israel.

Dangerous times call for dangerous bombs

Two weeks ago, in a startling development, most remarkable for the matter-of-fact way in which it was reported, the Israeli government asked the U.S. Congress to approve the sale to it of $1.9 billion worth of bombs, missiles, and "smart bomb" kits for guiding all of the above to their intended targets. Word of the request was delivered to Congress through the intermediary of the Defense Security Cooperation Agency as a notification -- and almost immediately approved.

In total, the Israeli shopping list includes more than 32,000 pieces of military equipment, including:

• 14,500 KMU-556C/B Joint Direct Attack Munitions (JDAM) tail kits, built by Boeing (NYSE:BA) and used to convert ordinary Mk-82, -83, and -84 "dumb" bombs into "smart bombs" guided by GPS
• 4,500 actual 1,000-lb Mk-83 bombs
• 3,500 500-lb Mk-82s
• (But apparently no 2,000-lb Mk-84s -- which Israel is able to produce domestically)
• 4,100 GBU-39 Small Diameter, precision GPS-guided glide-bombs (also from Boeing)
• 50 BLU-113 5,000-lb "bunker buster" bombs from General Dynamics (NYSE:GD), each capable of penetrating through 20 feet of reinforced concrete
• 1,500 Paveway laser-guidance kits from Raytheon (NYSE:RTN), which can be attached to the Mk-83 bomb
• 700 similar Paveway kits for attachment to BLU-109 bunker busters (but no actual BLU-109s)
• 3,000 AGM-114K/R Hellfire Missiles from Lockheed Martin (NYSE:LMT)
• 250 AIM-120C Advanced Medium Range Air-to-Air Missiles from Raytheon
• 500 of Boeing's DSU-38A/B Detector Laser Illuminated Target kits for guiding JDAM-modified smart bombs to their targets

JDAM guidance kits make dumb bombs smart. They're a form of mass education for munitions. Photo source: U.S. Navy.

That's a lot of hardware

It sure is. Everyone who is anyone in military arms sales seems to have found a customer in Israel here. So the suppliers aren't in doubt, but what about the "end users?" Who's going to wind up on the receiving end of all this ordnance?

Reporting on the arms deal last week, DefenseNews.com and Defense-Update.com referred to it as simply a "resupply" or "replenish[ment]" of Israeli arsenals that were exhausted during last summer's war against Hamas. If you believe this theory, then maybe no one needs to worry about Israel's swelling arsenal. As DefenseNews explained, "[D]uring last summer's Gaza war ... the Israel Air Force dropped an estimated 100 tons of munitions during the 50-day campaign," implying this purchase is nothing more than a stock-up.

And indeed, this is one reason that, when investing in the defense industry, I prefer to own shares of companies that make "bullets" rather than companies that make the airplanes, ships, and tanks that shoot the bullets. From an investor's perspective, the great virtue of a bullet (or bomb, missile, or rocket) is that once you shoot it, you need to buy another bullet. That's not the case with a warplane like Lockheed Martin's F-35, for example, because in theory at least, once you buy an F-35, you're pretty much set -- and won't need to buy another one for 60 years.

Simply put, if you're a fan of recurring revenues, it's really hard to beat a bullet-maker as an attractive investment.

So on whom is Israel planning to "recur" these particular missiles?

Quite possibly, on Iran. After all, if we were only talking about Israel replenishing exhausted tonnage, well, the 50 two-and-a-half-ton bunker busters Israel is buying weigh more than 100 tons altogether. Even if "replenishment" explained 50 of the bombs, missiles, and other equipment that Israel is buying... there's still 32,050 other bombs to be accounted for.

And this ordnance may have Iran's name on it. Last month, in an interview with Israel's Channel 10 news, Israel Air Force commander Maj. Gen. Amir Eshel described in some detail the IAF's plans to "get the job done" if ordered to attack Iran's nascent nuclear weapons program. As later quoted on DefenseNews, the general further clarified: "We're training ... to attack as many targets as possible in the shortest amount of time. ... In order to win the war and to do it in a short amount of time, the quantities [of ordnance on hand must] be very, very big."

"Many targets"? "Win the war"? Statements like this seem to suggest that last week's massive rearmament might be about a lot more than mere "replenishment."

32,100... 32,099... 32,098 -- here's hoping Israel isn't counting down to Armageddon. Photo source: Britain's Imperial War Museum.

Rich Smith owns shares of Raytheon Company, one of America's premier maker of high-tech "bullets" for the military. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 359 out of more than 75,000 rated members.

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