There is some potentially big news in the defense and warfare industry, but more in process than in size. It is also important to realize that this is not yet written in stone. The U.S. State Department has now approved the potential sale of precision-guided munitions and equipment to its NATO partners. This is a pilot program where NATO could spend about $231 million, whereby NATO’s own support and procurement unit would be the actual buyer for militaries inside of NATO.

If the sale is approved by Congress, NATO member countries like the Czech Republic, Greece, Denmark, Norway, Belgium, the Netherlands, Portugal and Spain would be able to get the precision-guided munitions by sharing costs and pooling resources to actually buy and pay for the weapons. This deal is said to be in tranches and was a two-year pilot program that started in early 2015 via the Pentagon’s Defense Security Cooperation Agency.

What makes this effort different than so many years worth of prior orders is that arms sales by U.S. companies are traditionally made with individual nations. This is effectively a procurement alliance, and it is aimed at saving money by being able to get a larger grouped order or orders. How it will work through time, and whether it ultimately cannibalizes higher margin individual nation sales, remains to be seen.

One issue that could delay or block this new effort and process might be a concern about whether the technology could be transferred to outside parties or nations. Still, we shall have to wait and see whether the order is given the final approval.

This order specifically names subsidiaries of Boeing Company (NYSE: BA) and Raytheon Co. (NYSE: RTN) as the beneficiaries. We have taken a look at the details compared to the larger picture for each company below.

The news release’s quote from the Defense Security Cooperation Agency, edited down, said:

The proposed sale improves NATO members’ capability to meet current and future ground threats with precision. They will use the enhanced capacity as a deterrent to regional threats, and to increase interoperability within contingency operations. Many of the purchasing nations already have precision-guided munitions in their inventories and will have no difficulty absorbing these additional munitions. … Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to NATO. … There is no adverse impact on U.S. defense readiness as a result of this proposed sale. … This notice of a potential sale is required by law and does not mean the sale has been concluded.

NATO Support and Procurement Agency showed a list of which systems will make up this approximately $231 million order. They were as follows:

• 500 Joint Direct Attack Munition (JDAM) Guidance Kits, KMU-556 F/B
• 40 JDAM Guidance Kits, KMU-557 F/B
• 1,500 JDAM Guidance Kits, KMU-572 F/B
• 1,000 MAU 210 E/B Computer Control Groups for 1,000-lb. Enhanced Paveway IIs
• 300 MAU 210 E/B Computer Control Groups for GBU-49s
• 1,025 MAU 169 L/B Computer Control Groups for GBU-12s
• 1,350 Joint Programmable Fuzes, FMU-152 A/B
• 60 Bomb Fin Assembly and Airfoil Group 650-MXU K/B for GBU-12s
• 1,025 Bomb Fin Assembly and Airfoil Group, MXU-650 K/B AFG for GBU-12s

The order also included the following: Detector Sensing Unit (DSU)-38A/B Laser sensors; DSU-33D/B proximity sensors; Wireless Paveway Avionics Kit (WIPAK) interfaces for Enhanced Paveway II bombs; FMU-139C/B electronic bomb fuzes; repair and return services; transportation; engineering services; and other support services.

Normally 24/7 Wall St. would not get too excited about a $231 million order that is being split among two multi-billion defense contractors. Still, this is the first, and it could ultimately lead to larger single orders rather than so many small orders.

The impact on Boeing might be harder to evaluate as important in the big picture since so much of its revenue-generating government and agency orders are based on planes and space systems. Boeing’s market cap is $83 billion, and its 2015 revenue was $96.1 billion. At $133.34, its shares were up 0.8% late on Thursday. Boeing has a 52-week trading range of $102.10 to $150.59 and a consensus analyst price target of $149.00.

Raytheon’s market cap is almost $42 billion, and its shares were up 0.8% at $141.95 late on Thursday. Its 52-week range is $96.68 to $142.15, and its consensus price target is $150.77. Raytheon’s 2015 revenue was $23.25 billion.

This is one of those news announcements in which the implication of the order and the process of it could greatly outweigh what the mere $231 million size might indicate. Ultimately this could alter how hundreds of millions of dollars or even billions of dollars in orders could be handled.

Stay tuned.

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