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Northrop Grumman Wins Again

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Another day, another budget cut. As part of the Pentagon's ongoing effort to get its spending plans in line with America's spending abilities, last week the Pentagon swung the ax again, killing off the long-awaited medium-range maritime unmanned aerial system, or MRMUAS.

On the surface, the move sounds like good news for taxpayers. On the other hand, it sounds like bad news for the three defense contractors that were leading the competition: Boeing (NYSE: BA  ) , Lockheed Martin (NYSE: LMT  ) , and Northrop Grumman (NYSE: NOC  ) . No MRMUAS project means these three companies miss out on the chance to pocket $200 million that had been budgeted for the program in fiscal 2013 -- and much, much more in future years.

Or does it?

Heads, Northrop wins; tails, it doesn't lose
As it turns out, one of these companies probably isn't too upset with the MRMUAS decision... because what it loses in MRMUAS funding it makes up from the Pentagon's Plan B. You see, the reason MRMUAS got the ax wasn't just because money's tight in Washington these days. It's also because the new bird wasn't really necessary. After looking closely at what it needed a new drone to do, the Navy decided that Northrop Grumman's MQ-8 Fire Scout fit the bill well enough, that it didn't need a new drone after all.

So instead of funding a new development program, the Navy has opted to upgrade the existing Fire Scout version (MQ-8B) to a new version (MQ-8C). In so doing, it will sub out the old Fire Scout's Schweizer 333 chassis, built by United Technologies, for a Bell 407 platform built by Textron (NYSE: TXT  ) instead. The added range, endurance, and lift capability of the upgraded bird, the Navy says, are all it really needs at this point. As a result, not only does Northrop no longer have to worry about Boeing or Lockheed horning in on its robo-helo business, the Navy's decision to cancel MRMUAS has actually made the company's planned sale of 28 upgraded Fire Scouts to the Navy more secure than ever before.

Foolish takeaway
With each passing day, Northrop's dominance of the unmanned aerial vehicle market just grows and grows. This day is no exception.

Aside from Northrop, are there any other companies out there with a chance of thriving despite defense spending cutbacks? Actually, there are. Find out who they are in the Fool's new -- and free! -- report: "2 Small Caps the Government Won't Let Go Broke."

Fool contributor Rich Smith does not own (or short) shares of any company named above. The Motley Fool has a disclosure policy.

The Motley Fool owns shares of Northrop Grumman, Lockheed Martin, and Textron. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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9/27/2016 9:50 AM
NOC $217.00 Down +0.00 +0.00%
Northrop Grumman CAPS Rating: ****
BA $130.60 Up +0.03 +0.02%
Boeing CAPS Rating: ****
LMT $245.92 Up +0.39 +0.16%
Lockheed Martin CAPS Rating: ****
TXT $39.24 Up +0.04 +0.10%
Textron CAPS Rating: ****