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Good News for Defense Contractors Amid the Gloom

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I have some good news: The House and Senate Armed Services Committees have reached an agreement for defense spending for fiscal year 2013 -- that's, of course, assuming the nitwits on Capital Hill figure out how to avoid sequestration. While there are deep cuts, there's also some good news for defense contractors and their investors. 

Who benefits?
In a move that's good for Boeing (NYSE: BA  ) , the Armed Service Committee approved a multiyear procurement deal for the Boeing-made Army CH-47 helicopters . Additionally, the budget approved $338 million for the continued production of heavily armored vehicles for the Army.  That's great news for General Dynamics (NYSE: GD  ) , which builds the Army's M1 Abraham Tanks , and London-based BAE Systems (LSE: BA.L  ) , which builds the Bradley platform.

Additionally, the committee approved a $9.8 billion missile defense budget, which is great news for Northrop Grumman (NYSE: NOC  ) , the prime contractor on the Missile Defense Integration and Operations Center (MDIOC) -- the premier missile defense center for the U.S. Department of Defense.  

The total budget request for defense spending in 2013 is $88.5 billion for overseas operations and $525.4 billion for the base budget -- a total of $613.9. That's quite a bit below 2012's enactment, which was $530.6 billion for the base and $115.1 billion overseas for a total of $645.7. So, while defense contractors are going to have to continue getting lean and mean, it's not a complete gouging to the sector. 

Now what?
Since fiscal year 2001, the defense budget has consistently grown, but with America's wars winding down and current budget crisis looming, any money the government allocates to defense contractors is a win for them. Of course, all of this could change if the idiots -- er, Congressmen -- don't get their acts together before Jan. 1, but at least some departments are acting responsibly. And that's great news for investors who are looking at the long term in defense investing.

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  • Report this Comment On December 27, 2012, at 11:37 AM, DCUDFlyer wrote:

    Thanks for your insight Katie.

    I'm in contracting and believe the Defense cuts won't do much damage to the large contractors but will severely damage the smaller, defense-specific firms.

    I also find it interesting that DoD is attempting to achieve audit readiness while their resources will be extremely limited.

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