December 10, 2007: Aero Defense update

Pictures: up-to- date war targeting room (blurred for security), and,one of the Churchill War Rooms from WW2.


At a recent conference, many of the major players in the Aerospace and Defense game offered foreword-looking comments. In a nutshell, here are a few of them that may flavor your taste to investigate for possible purchase. The sectors are looking very as I have written about in past posts.

General Dynamics (GD): Bullish on long term defense spending. Sees growth in aircraft purchases through at least 2010. Classified projects for OD way up.

Precision Castparts (PCP): Sees strong aerospace cycle. Boeing 787, 737, 777 very strong. Airbus 320 strong. Seamless pipe is eighteen months backlogged. Strong growth opportunities in China. Wants to acquire raw materials suppliers at the right price.

BE Aerospace (BEAV): 787 and A320 make up about 14% of backlog orders. Business very strong overall. Airline consolidation a positive due to a need for standardization and thus retrofit activity.

Spirit AeroSystems (SPR): SPR may still acquire Airbus facilities, though it would be controversial and risky for the company. Will likely build a plant in Malaysia.
Business is very good.

Ducommon (DC0): Becoming increasingly global with locations in Mexico, Taiwan and India. Goal is $1b in sales by 2012 in aircraft parts.Top five programs are Apache, 737, C-17, F-18 and Blackhawk. DCO is up for sale at the right price.

RTI International (RTI): Very bullish across the board. Emphasized value of downstream integration and growth opportunities with fabrication and distribution.
Latest Airbus contract of $1.1b provides Airbus with 35% of titanium requirements, including the A350. 787 contract for seat tracks starts in 2008. Building new sponge capacity, but still not self-sufficient.

AerCap (AER): Used aircraft at its lowest availability in five years. Significant shift amongst airlines from buying to leasing aircraft. Has 325 aircraft in its fleet with A320s making up the largest portion-buying on the cheap from the consortium. They love the A320 new aircraft discounts. Joint venture with China in the works.

Lockheed Martin (LMT): Bullish on defense. Growth mid single digits next few years. The new F-35 fighter will add significantly to the bottom line. Aeronautics is where its at with LMT.

Northrup Grumman (NOC): Pleased with DOD budgets. Ships performance needs to be improved. Remaining Katrina ships should be delivered in 2009. Lots of minor contracts in positive performance mode.

Boeing (BA): Bearish on defense.Focusing on core business - commercial aircraft.

L-3 Communications (LLL): Doing very well in a generally non-competitive business. 88% of sales for 2008 will be in backlog by the end of 2007. Bullish on defense. Strongly downplayed ability for any company to take out L-3.

Goodrich (GR): Bullish. Looks for 10% growth or more. GR not worried about ramp-up for new aircraft production from Airbus and Boeing. 95% hedged in currency exposure in 2008. Likely to close high cost plants and move most operation abroad.

Hexcel (HXL): Management very upbeat on near and long term outlook. Likely to win a big piece of the Airbus A350 platform. This means 6-7 million dollars in composite product per plane - similar to the Boeing 787. There carbon fiber product is high grade quality and thus the producer of choice of the aircraft industry.

Orbital Science (ORB): Bullish. Very strong position on the missile defense program. 90% of revenue in backlog orders.


These notes are intended to give you a bit of general news about the industries. Remember that a good company does not always equate into a good stock.