Why Would America Sell Saudi Arabia 15,699 Dangerous Missiles?

In what has to be hands-down the biggest development in defense news this week, Saudi Arabia just asked America to sell it 15,000 rockets.

The Pentagon has approved the sale of more than 15,000 Raytheon Co anti-tank missiles to Saudi Arabia under two separate deals valued at nearly $1.1billion.

The Defense Security Cooperation Agency, which over sees foreign military sales, notified Congress on  that it had approved Saudi Arabia’s request for nearly 14,000tube-launched, optically tracked wire-guided (TOW) missiles for its national guard, and more than 1,700 similar missiles for the Royal Saudi Land Forces.

More precisely, 15,699 rockets.

Or even more precisely:

  • 9,650 of Raytheon‘s (NYSE: RTN  ) BGM-71 2A Tube-launched, Optically tracked Wire-guided (TOW) Radio-Frequency (RF) missiles
  • 4,145 BGM-71 2B TOW Aero RF missiles
  • 1,000 BGM-71 2A TOW missiles
  • 750 BGM-71 2B TOW missiles
  • and an assortment of 154 “fly to-buy” TOW2B and TOW2A missiles.

Are there 15,000 tanks lumbering around somewhere in the Middle East, that Saudi Arabia wants to blow up? Or is there just one tank out there that’s bugging them… and the Saudis are just really bad shots?

Thus, Saudi Arabia is seeking to purchase 15,699 missiles in total. All TOW missiles are designed primarily to be used as anti-tank weapons. TOW Aero missiles have greater range than the base model, while the TOW RF variant is designed so that it can be guided not only by wire but also radio-controlled. TOW Aero RFs have both extended range and the ability to be guided by radio control. Meanwhile, “fly to-buy” units are selected from a delivery lot at random for test firing as a cost-effective way of ensuring that a given batch of missiles is in working order.

Opinions on the question probably differ. According to Middle East news organization Al-Jazeera, for example, the entire nation of Israel owns fewer than 4,000 tanks. Iran has less than 2,000. Most of the tanks in Iraq, the Saudis’ usual sparring partner, have already been blown up… although Iraq has embarked upon a multibillion-dollar spending spree to rebuild its armed forces with dozens of M1 Abrams tanks and Stryker APCs from General Dynamics(NYSE: GD) .

This still all adds up to fewer than 6,000 tanks for the Saudis to shoot at, however. So while according to DSCA, the express purpose of this sale is to “support the Ministry of the National Guard’s defense and counter-terrorism missions,” you have to wonder if a few (or more than a few) of these missiles might not somehow find their way into the hands of the combatants fighting to overthrow the regime of Bashar al-Assad in Syria.

Investors may rightly be worried about the fate of the defense industry in the U.S. However, Raytheon and other leading contactors like Lockheed Martin Corp. (LMT) have emerged relatively unscathed so far, thanks to foreign contracts.

Pentagon’s largest contractor, Lockheed Martin, is touted to win a sizeable contract from South Korea for 40 of its F-35 Joint Strike Fighters. Although South Korea’s Defense Ministry did not clearly specify Lockheed Martin as the winner, the country’s need of the hour to beef up its stealth capability leaves the company’s F-35A stealth jet as the only viable contender in response to North Korea’s growing nuclear threat.

With Raytheon earning a net 8% profit margin on these sales, this deal is good news for Raytheon’s shareholders — whomever the Saudis point their new missiles at, or even if they point them at no one at all.