Defense Budget Boom

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Congress has approved next year's defense bill, and as expected, it's a whopper. The measure, which still has to be approved by the president, authorizes military expenditures of $422 billion, about $20 billion more than the White House originally requested in February.

There's little doubt that there are plenty of goodies in there for defense giants such as Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), and General Dynamics (NYSE: GD). Even Boeing (NYSE: BA), which will be blocked by the bill from leasing tanker aircraft to the Air Force, will have a shot to bid on a new tanker supply contract. According to the Department of Defense, the president's original request called for nearly $75 billion in procurement, up about 25% from 2001.

Still, that doesn't mean that the picture for the defense industry is completely rosy. As Fool contributor Rich Smith recently wrote, the war on terrorism carries with it a new set of priorities. These new aims may prompt funding shifts that could have unpleasant consequences for defense contractors.

In the case of the recent bill, additional spending is earmarked for a 20,000-man increase in the Army and 3,000-man jump in the Marines. Meanwhile, presidential candidate Sen. John Kerry has promised an even greater boost in troop strength if he is elected. Adding and maintaining a higher number of active duty military professionals will be expensive, and in the coming years defense giants may have a harder time getting some high-tech weapons systems funded as manpower grows.

For now, the trend of higher military spending looks unstoppable. But with both the president and his challenger promising to cut the budget deficit in half and stay the course with commitments overseas, some programs already may be vulnerable.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.