6 Stocks That Never Surrender

Aside from earthquakes, Ford's (NYSE: F) earth-shattering sales report, and the continuing aftershocks from Sirius XM's sub-$1 landslide last week was a pretty slow one for market news, so let's dive right into this week's defense stock stats:

Source: Yahoo! Finance.
*Tracking began on July 10, 2009. Portfolio is equal-weighted, with "recent price" being set at market close on the Friday preceding publication, and adjusted for stock splits and dividends.

As you can see, the defense sector continues to lag the broader S&P 500 this week. But not for lack of trying. Take Lockheed Martin, for instance.

Shocking news!
Market mavens are all a-flutter these days over the trials and tribulations of the F-35 Lightning II fighter jet. Over budget and behind schedule for production, Lockheed received word from the Pentagon last week that full-rate production on the plane is getting pushed back, with the Air Force probably not receiving planes until 2015. Not only that, but the additional testing that will be conducted between now and then will add $2.8 billion to the plane's development cost, potentially increasing the per-unit cost of each aircraft manufactured.

Not good.

On the plus side, however, the Pentagon is already on-record calling the F-35 probably the last manned fighter it will ever order built. With no real alternatives to the fighter jet, they're requesting that Congress allocate "long-lead" funding to build 48 of the warplanes as part of the 2011 Defense Budget.

(Middle) Eastward, ho!
The F-35 may be our last manned fighter jet, but Lockheed's enjoying some success selling its last fighter as well. Pentagon sources last week confirmed their intention to "sell" (i.e., we give 'em the money as military aid, then they give it back to us to buy armaments) Pakistan a batch of Textron's (NYSE: TXT) Shadow unmanned aerial vehicles, smartbomb conversion kits manufactured by Lockheed and Raytheon, and most importantly, F-16s from Lockheed.

Around about the same time, Lockheed confirmed that another recipient of copious U.S. military aid funding -- Egypt -- will be purchasing a 20 new F-16 fighter jets for its own air force. Initial funding should net Lockheed $213 million, with more revenues to follow as the planes are delivered through 2013.

And now, the moment you've all been (and still are) waiting for
But of course, the week's biggest defense news concerns our returning champions, Boeing (NYSE: BA) and Northrop Grumman (NYSE: NOC) ... and Northrop trouble twin EADS.

Remember how I said back in January that EADS was in danger of imploding, crushed by the financial burden of billions of dollars of losses on its over budget and overdue (hmm ... sounds familiar ...) A400M military transport? Well, as it turns out, the plane's European backers have saved the day, stepping in Friday to offer EADS a $4.8 billion bailout to salvage the stalled aircraft.

The seven partner nations will be waiving damages on delays incurred to-date, accelerate prepayments for the planes they intend to purchase, and loan EADS about $2 billion to be repaid through future export sales of the aircraft.

Now, EADS isn't getting off scott-free. Losses on the project already total $3.3 billion, and even after the bailout, EADS expects it will need to take another $2.4 billion in pre-tax charges to fiscal 2009 earnings. Still, $5.7 billion is a whole lot better than the potential $8+ billion loss EADS was looking at back in January, when the A400M looked to be in real danger of actual cancellation.

Boeing's big score
Last, but far from least, we have a bit of late-breaking news that bears mentioning. Yesterday evening, after close of trading on Wall Street, EADS partner Northrop confirmed that it's going through with its threat: It's pulling out of the KC-X Tanker competition, probably creating a "sole-source outcome for Boeing."

Now, it's still possible that EADS will choose to proceed sans Northrop, and bid on KC-X solo (in fact, rumor has it that EADS was pushing Northrop to proceed with its bid up to the very last minute.) Possible -- but unlikely. EADS/Northrop already lucked out once, winning this contract two years ago (before the decision was reversed.) I very much doubt that lightning would strike twice in its favor.

Looks like this round goes to Boeing.

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