Articles tagged with: Defense Budget

25
September
2014

Syria-to-Ukraine Wars Send U.S. Defense Stocks to Records

Featuring: Philip Finnegan

Syria-to-Ukraine Wars Send U.S. Defense Stocks to Records

Pentagon contractors have been responding to the pullback in U.S. military budgets by shifting focus to international markets, said Philip Finnegan, director of corporate analysis at Teal Group, a Fairfax, Virginia-based consultant that tracks defense and aerospace companies.

Even with revenue at Lockheed, Raytheon, General Dynamics and Falls Church, Virginia-based Northrop down 4 percent since 2011, non-U.S. sales have climbed 9 percent during that stretch. The four companies also have pared expenses, including reducing their combined workforce since 2011 by 23,000 people, or about 6 percent, according to data compiled by Bloomberg.

The improvements to profitability, combined with investor-friendly moves such as stock buybacks, may influence share prices more than the strife in Iraq and Syria, Finnegan said.

"Clearly the world has become increasingly unstable. The question of whether that has a major impact on the defense budget is uncertain," Finnegan said. "There may be an investor psychology that suggests that there's going to be a large benefit to these companies. But the jury is still out."

Media Outlet: Bloomberg Tags Defense Budget | International Markets | Syria

30
March
2014

Weapons Spending Inches Upward

Featuring: Richard L. Aboulafia

Weapons Spending Inches Upward

"It's 50 percent off the peak, which is pretty draconian," Richard Aboulafia, vice president of analysis at the Virginia-based Teal Group, said of the military helicopter market projections. A big unknown in this sector is the procurement rate for the Air Force's Combat Rescue Helicopter program. The Air Force intends to award to Sikorsky a contract for 112 new Black Hawk helicopters that will replace HH-60G Pave Hawks by the end of June, according to service officials. The Air Force says it plans to spend just over $1 billion between 2015 and 2019 for the effort. But the Army plans to retire the Bell Kiowa Warrior and has not funded a new armed aerial scout program. It did, however, fund procurement of 100 new Airbus Lakota helicopters, adding more than $800 million for that effort in the coming four years.

The downturn in military helicopter purchases could lead to a major merger within the industry, Aboulafia said. The military has relied heavily on helicopters over the past decade, particularly in Afghanistan, where rugged terrain has limited the access of fixed-wing aircraft and ground vehicles. Production rates have soared for the big US helicopter makers Sikorsky, Boeing and Bell over this period.

The projected downturn in the helicopter market sounds bad, “but on the other hand we were at a very high [production] peak,” Aboulafia said. Fewer military buys could lead to the acquisition or merger of one of the three big US helicopter makers, the analyst said. “You have to ask the question, is three primes the right number for the US, especially when there is foreign competition from another two primes?” Aboulafia said. “You’re going to almost certainly see the impetus for a merger or for some kind of asset swap,” he said. “It’s just a question of whether [the Justice Department] and DoD permit it.”

The three prime helicopters survived defense spending declines in the 1990s and the current projected downturn is still not as severe as two decades ago. “Even with this downturn, there’s more business than there was,” Aboulafia said. “On the negative side, corporations have different expectations of growth and profitability today.”

Media Outlet: Defense News, Federal Times Tags Defense Budget | Helicopters

29
March
2014

Scrapping U-2 Won’t Save As Much As Touted

Featuring: Richard L. Aboulafia

Scrapping U-2 Won’t Save As Much As Touted

The money is still significant, since it roughly covers funding the service’s Combat Rescue Helicopter program. But budget sequestration has forced the service to look for cuts “measured in billions rather than ‘just’ millions of dollars,” as Air Force testimony to Congress put it. “I expect it will be a wash cost-wise, with a certain degree of risk in that capability gap,” said Richard Aboulafia, an aviation expert with the Teal Group. “That’s a short-term illusion of savings.”

Media Outlet: Defense News Tags Defense Budget | Sequestration

06
February
2012

DOD Should Weigh Reforms for Small Contractors: Panel

Featuring: Joel Johnson

DOD Should Weigh Reforms for Small Contractors: Panel

A pair of government contracting experts told the U.S. House of Representatives' Armed Services Committee on Monday that without reforms, small companies will have an increasingly difficult time doing business with the Pentagon as its budget shrinks.
Joel Johnson, director of the defense consulting firm Teal Group Corp., and Allan Burman, president of the contractor Jefferson Solutions, told the committee that the U.S. Department of Defense would benefit by creating new incentives for small business contracts.

Johnson and Burman testified before the committee as part of an ongoing set of hearings called "Doing Business with the DOD." It is the second hearing this year that has touched on contracting obstacles for small businesses.

According to Johnson, shrinking research and development budgets will cause major contractors to stop subcontracting with smaller counterparts, likely forcing small businesses to make painful workplace reductions.

"Smaller companies currently not doing defense work will be skeptical that this is an area to pursue, particularly if the civil economy is beginning to show signs of life," Johnson said. "This makes it all the more important that the government is not seen by potential innovators in the private sector as being an unattractive customer, partner or investor."

 

Media Outlet: Law360 Tags Defense Budget | Defense Contractors

11
February
2008

Muscular Defense Plan Buoys Contractors

Featuring: Philip Finnegan

Muscular Defense Plan Buoys Contractors

That would mean big new opportunities and more funding for major projects for local defense and technology contractors, including Lockheed Martin of Bethesda, General Dynamics of Falls Church, SI International of Reston, CACI International of Arlington and Northrop Grumman, which is based in Los Angeles but has a large presence in the Washington area. “The expectation has been that it can’t continue to increase as it has,” Phil Finnegan, a defense analyst at the Teal Group in Fairfax, said of defense spending. “But it has surprised everyone to see how long this increase has continued. This budget was a great budget for all defense contractors. It includes continuing growth — not as fast as last year, but it enabled everyone’s programs to be funded.” Finnegan, other analysts and executives at contracting companies said they don’t expect the party to last indefinitely.

Media Outlet: The Washington Post Tags Defense Budget

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