February 18, 2007: Aero defense tidbits

Pictures: Global Hawk, the new DDG-1000 and Boeing's venerable 737-300






A very interesting week. For defense contractors, the sham of supporting military equipment quantity for the ground forces while screwing the War on Terror message from the House of Representatives was good news.

Rep. Jack Murtha sent a Congessional minion to the large defense contractor conference this week hosted by a major brokerage house and told the participants that Murtha was going to propose even more money for equiping the Marines and Army in 2007/08. Or, at least enough to placate defense campaign contributors not to worry about a Democratic strategy for surrender in Iraq. A sly man, Jack Murtha is.

> Two MRAP contracts went issued. One for $66.8m (125 Vehicles) to GD/FRPT and one for $55.7m to BA.L for 90 RG-33Ls. IMPORTANTLY, the DoD is going to spread out the contracts for MRAP's amongst several providers for a quicker delivery schedule. No one firm is going to get all the business. GD has already hinted that the MRAP contracts were not going to add anything significant to their bottom line. Force Protection should take a similar view, but since this company is in play with many individual traders, I expect the stock to be bid up to around 20/sh. Anything near 20 would be a good opportunity to take profits. MRAP contracts are now in play on a weekly basis, possibly due to the uncertainty over the length and intensity of the Iraq situation. Also, the new killing devices used by Iraq terrorists can easily penetrate existing MRAP armor, a significant problem.

>Raytheon (RTN) received a $308m contract for the DDG-1000 mission system equipment and engineering support.A very interesting ship.

>Northrup Grumman (NOC) won a $559m contract for a Global Hawk system from the German government.

Rumor has it that Congress may grant the USAF permission to retire older platforms.

>ERJ delivered 37 aircraft in 4Q 06.The year total was 130. ERJ is contracted for 170 this year, $14.8b in orders.

>Boeing (BA) confirmed its order from UPS to deliver 27 of its 767-300 freighters.

The FAA proposed user fees, fuel taxes and new bonds to fund modernization of ops and traffic control systems at US airports.

Taking stock: recommendations

BE Aerospace (BEAV)
Goodrich (GR)
Precision Castparts (PCP)
Spirit Aero Systems (SPR)
Boeing (BA)
Esterline Tech (ESL)
Armor Holdings (AH)
DynCorp (DCP)
General Dynamics (GD)
L-3 Communications (LLL)
Northrup Grumman (NOC)
Raytheon (RTN)

With the Democrats taking the position of supporting the troops and not the mission, I may be adding to my defense stocks in short order. Support the stocks but not our country's interests and long term well-being, I suppose.