Not much boom in US budget for defense contractors
Monday, February 1, 1999
By Laney Salisbury
NEW YORK, Feb 1 (Reuters) - The major U.S. defense and aerospace
companies are not likely to see their earnings or ailing stock
prices blown higher by the military budget proposed on Monday,
analysts said.
The proposed budget for fiscal 2000, which begins in October,
calls for spending to rise to $280.8 billion from $276.2 billion.
It includes $53 billion for more modern weapons and $6.6 billion
for a national missile defense system to fight ballistic missile
threats.
"This budget sends the signal money won't just dry up for
programs but it is not by any means a windfall for defense
contractors," said Richard Aboulafia, an aerospace and defense
analyst at Teal Group.
Aboulafia and other analysts put little weight behind President
Bill Clinton's requests for an additional $112 billion between
now and 2005 -- the first sustained increase in over a decade --
because priorities and programs are likely to change.
"The budget is not making any strategic decisions. It is giving
just enough extra money to programs to help them survive for the
next couple of years," said Jon Kutler, defense analyst at
Quarterdeck Investment Partners.
Stocks at the top defense contractors on Monday were mixed
following the budget news. Boeing Co. (Nyse:BA) was down 1/4 at
34-5/8 and Raytheon Co. (Nyse:RTNa) was up 3/16 at 55-15/16.
Lockheed Martin Corp. (Nyse:LMT) 2-5/16 at 37-9/16.
The past four months have been tough for the industry, whose
major players lost nearly 15 percent in market capitalization
over the last four months, said Kutler.
The analyst blames the decline largely on the cost savings and
writeoffs that came with a recent wave of consolidation starting
to disappear from company balance sheets.
"The goody bags are now running out," said Kutler. "The budget,
though, is still positive for some companies, but only because it
is an increase, not a decrease."
One major plum in 2000 for defense contractors is increased
spending for the National Missile Defense system, which involves
Boeing, Raytheon and Lockheed Martin.
Boeing said it expects revenue from the system to increase to a
little over $1 billion in 2000 from $600 million in revenue last
year. If the system were deployed -- a decision to be made in
June 2000 -- Boeing could see revenue grow another $1 billion by
2004.
Raytheon forecast its revenue to expand by 2.5 percent to 3
percent annually starting in 2000 if the new budget -- and that
beyond -- were passed. Raytheon provides ground-based radar for
the missile defense system.
Lockheed declined comment.
The $53 billion in weapons modernization also includes building
eight new ships in 2000 as well as 36 F-18E/F fighter jets made
by Boeing and six F-22 "stealth" fighters and 10 F-16 fighter
planes from Lockheed Martin. Quote for referenced ticker symbols:
RTNa, LMT, BA © 1999, Reuters
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