US: Business booming for U.S. defense contractors

U.S. defence contractors are riding high these days, buoyed by rising Pentagon spending on the wars in Iraq and Afghanistan as well as the high cost of homeland security in the U.S.-declared war on terror.

The fiscal 2006 defence budget is set to climb to 441 billion dollars, an increase of 21 billion dollars over 2005. It envisions an additional 50 billion dollars for the wars in Iraq and Afghanistan.

Congress plans to approve 79 billion dollars for weapons systems procurement and about 69 billion dollars for military research and development.

Lockheed Martin, Boeing, Northrop Grumman, Raytheon, General Dynamics, Honeywell and United Technologies have all done well in the first half of this year and have a huge backlog of orders. With President George W. Bush and Congress ready to spend, they can expect robust sales for years to come.
Lockheed Martin, the biggest U.S. defence contractor and top seller of secure computer systems, saw net profit jump 41 per cent to 830 million dollars in the first six months of 2005.

Half-year sales rose to 17.8 billion dollars from 17.1 billion dollars in the same period last year, despite a drop in deliveries of F-16 fighter jets that cut into warplane sales.

Lockheed, which is also strong on missile defences, integrated electronic combat systems and military space programmes, projects 2005 sales of up to 38 billion dollars and has orders worth another 73 billion dollars.

Boeing, the second-largest commercial aircraft maker behind Airbus, is also the second-largest U.S. defence contractor. Sales in the first two quarters of the year were up 8 per cent to 27 billion dollars. Earnings dropped 10 per cent to 1.1 billion dollars due to one-time charges related to its commercial aircraft operations, but that didn't dampen the company's outlook.

Boeing's military division posted sales of 15.3 billion dollars in January-June, an increase of 5 per cent. Operating profits rose 16 per cent to 1.7 billion dollars.
Another big prize would be a U.S. government contract for mid-air refuelling tankers, where Boeing is competing with the European Aeronautic, Defence and Space Company (EADS).

Boeing also coordinates Future Combat Systems (FCS), an ambitious 125-billion-dollar project aimed at making U.S. soldiers more effective on the battlefield by integrating new weapons and communications systems. Almost all U.S. defence contractors are participating. At the end of June, Boeing had military orders of 85.7 billion dollars.

Northrop Grumman, which specializes in warships, warplanes, information technology and space, has 57.1 billion dollars on its order books. Half-year earnings rose from 534 million dollars to 776 million last year on a decline in sales to 13.4 billion dollars from 13.4 billion dollars.

Raytheon, best-known for military electronics and weapons systems, saw sales rise 8 per cent in the first half of the year to 10.4 billion dollars, while earnings soared from 20 million dollars to 367 million. Raytheon has orders totalling 34.6 billion dollars.

General Dynamics, which makes warships, tanks and ammunition, increased its six-month sales 7.9 per cent to 10 billion dollars, and its earnings by nearly 20 per cent to 681 million dollars. It had 43.6 billion dollars' worth of orders at the end of June.

AMP Section Name:War & Disaster Profiteering
  • 9 Lockheed Martin
  • 11 Northrop Grumman
  • 12 General Dynamics
  • 13 Raytheon
  • 14 United Technologies

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