The Pentagon Just Placed a $120 Billion Restock Order.

The Order

The Pentagon on Wednesday earmarked more than $120 billion for contractors to step up production of Patriot missiles and long-delayed submarines to support future combat operations. The Patriot contract with missile maker Lockheed Martin is now valued at nearly $59 billion, a significant expansion of an order announced in April. General Dynamics Electric Boat and HII Newport News Shipbuilding received a $76.6 billion deal for nine Virginia-class and five Columbia-class nuclear submarines that will be delivered by 2038. Lockheed has another megadeal for missiles on order with the U.S. government — a preliminary $35 billion multiyear contract for Thaad interceptors, a larger munition also capable of thwarting ballistic missiles.

Both contracts span seven years and reflect the Pentagon’s changing approach to buying missiles. The military has proposed a series of multiyear agreements instead of annual purchases to guarantee a smoother supply of weaponry over time. The effort, launched last year under Deputy Defense Secretary Steve Feinberg, is designed to motivate contractors to invest in new factories and supply-chain agreements in exchange for a reliable signal of future orders.

The modified Army contract for more Patriot missiles comes as demand surges for the defensive weapon, used heavily during the Iran war and in Ukraine. The widening conflict in the Middle East has only deepened global demand for Patriots, an air-defense system capable of thwarting attacks from cruise and ballistic missiles. The newest Patriots cost around $4 million each and take years to produce.

The Fine Print, Which Matters

Congress must still provide annual funding for the deals. The recent agreements for Patriot and Thaad missiles are undefinitized contracts, meaning they lack the backing of full congressional funding. Democrats and some Republicans have expressed skepticism about the administration’s unprecedented $1.5 trillion military spending request, though some lawmakers have said they generally support higher spending on munitions like the Patriot.

Officials were already planning to surge missile production before the war with Iran launched in February added urgency to the issue. Replenishing munitions stockpiles and increasing shipbuilding capacity are top administration priorities, and have been pain points for the U.S. military. This is the distinction we keep drawing between this build-out and the one in the technology pages: one is financed by an appropriation with a political risk attached, the other by a bond with a coupon attached. Both can disappoint. They disappoint differently.

The Earnings Underneath the Headline

General Dynamics reported higher profit and revenue in the second quarter, as performance improved across all of the company’s lines of business. The defense company posted a profit of $1.16 billion, or $4.24 a share, for its quarter ended July 5, compared with $1.01 billion, or $3.74 a share, in last year’s comparable period; analysts polled by FactSet had expected $3.96. Revenue rose 8.1% to $14.09 billion, ahead of Wall Street models for $13.52 billion, and increased across all four business segments.

The company’s largest segment, marine systems, notched revenue of $4.66 billion, up 10% from the year-earlier period. Aerospace, with revenue up 15% to $3.53 billion, was its fastest-growing segment. Orders totaled $20 billion during the quarter. Total estimated contract value stood at $186.9 billion, including a backlog of $136.5 billion and an estimated potential contract value of $50.4 billion.

“We are well positioned to support our customers’ needs and are continuing to make significant investments to increase output to meet strong and growing demand,” Chief Executive Phebe Novakovic said. Backlog is the least glamorous word in this newspaper and the most useful one in this sector: it is revenue that has already survived a negotiation.

Boeing, and a Pickup Truck With a Security Clearance

Boeing spent another quarter in the red as it poured more resources into developing presidential jets and accelerating production of commercial planes. Fast-tracking work on the modified 747-8 jets that will some day serve as Air Force One will cost an additional $280 million, the latest in a series of cost overruns on the more than $4 billion project. The commercial-airplane division also posted an operating loss, albeit a smaller one than in the same quarter last year, as it absorbed costs from ramping up manufacturing to chip away at a multibillion-dollar backlog of undelivered planes.

Boeing’s overall second-quarter net loss of $428 million narrowed from the $612 million loss a year earlier; sales climbed 8%, and shares rose nearly 5% in Tuesday trading. The company this month opened a production line in Everett, Wash., meant to boost output of its workhorse 737 MAX jets; it is aiming to make 47 of the narrowbody planes each month, up from 42 earlier this year. Separately, the FAA asked airlines to inspect 453 Boeing 737-8 and 737-9 jets for improperly installed cabin seats, a job estimated to cost operators about $2.7 million in total.

And then there is Ford, which is not a defense contractor and is behaving like one. Chief Executive Jim Farley addressed a report this week that Ford secured a contract with the Department of Defense to build prototype tactical trucks; the Pentagon in recent months has asked U.S. automakers to increase their roles in the defense space and help boost weapons production. “Ford always answers the call to duty,” Farley said. Ford also raised its full-year earnings outlook to between $9 billion and $11 billion, up from $8.5 billion to $10.5 billion, and its shares rose 7% in after-hours trading.