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.

February 4, 2007: Defense appropriation tidbits 07/08

1.Special robot (many more devices of this sort are in the pipeline),2. USCG Walnut coming home to Honolulu after meritorious service in the Gulf -2003, 3.Army in action in Iraq (undated) and 4. how some Democrats in Congress view our military.


The President will recommend a 10% increase for the 2008 military budget. The component that funds the defense industry will be up 12.4%.

Supplemental war spending for 2008 will be requested at $142B, a 10% increase from 2007.

The supplemental request for the War on Terror for 2007 will be about $93B, less than anticipated.

Including War on Terror spending, military spending will be requested to grow at 14% levels for 2008.

Congress approved only $382B of the President's 2007 $439B Baseline military budget, cutting most deeply into MILPER and O&M while increasing family housing a notch.
Then, they increased the Bridge Fund from a requested $50B to $70B, a budgetary slight of hand. A second supplemental request for $94B is expected the second half of the year. If things improve in Iraq, the President will probably get it.

One reason the 2008 budget request is high is that the Administration may have concluded it has limited time and resources to continue to fund and prosecute the war in Iraq. This may be the last shot to get it right.

Another reason is that the $100B projected increase in the 2008 baseline budget includes both the initial cost of expanding permanent end strength for the Army/ Marines and, the incorporation of significant portions of OIF Optempo expenses into the 2008 baseline budget as directed by Congress in the 2007 Defense Authorization Act.

WARNING: Companies that depend upon the present conflict in Iraq to support their coffers had better begin to diversify their product line. Quickly. Investors must execute precise due diligence before purchasing stocks of this genre.