Defense Firms to Weather Econ Storm

Good news for South Bay jobs. Others may criticize this view, noting it could be bad news for peace efforts.

(AP) With the government spending hundreds of billions of dollars to fight wars in Iraq and Afghanistan, most big defense-related companies should also be able to withstand recessionary pressures.

Military spending has soared about 40 percent during the Bush administration, pushing up the stocks of General Dynamics Corp. and its competitors. The company's chief executive, Nicholas Chabraja, has pointed to General Dynamic's backlog of orders -- totaling $60.5 billion at the end of the quarter -- as a sign of the company's long-term strength.

Rivals such as Northrop Grumman Corp. and Lockheed Martin Corp. also have contracts that stretch decades into the future, as well as large cash reserves.

Analysts caution, though, that long-term problems loom for the sector. Both presidential candidates have called for reforms on how defense contracts are awarded, and many analysts see the government's $700 billion bailout plan as a crimp on future spending.

It seems "nearly impossible" that future military budgets "will remain unscathed by the current fiscal reality," Ronald Epstein, a Merrill Lynch analyst, wrote in a recent note.

JSA Research analyst Paul Nisbet said that even a partial withdrawal from Iraq would hurt ammunition manufacturers such as Alliant Techsystems Inc. and General Dynamics. Democratic candidate Barack Obama has also expressed skepticism about the level of spending on missile defense -- a revenue generator for Raytheon Co. and Boeing Co.

By contrast, Nisbet said companies such as Boeing and Goodrich Corp. are better positioned to weather defense cuts because much of their business involves the private aviation market.

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