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News > Companies
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Defense industry boost
graphic October 29, 2001: 4:21 p.m. ET

Lockheed-Martin is not the only company to benefit from strike fighter contract.
By Staff Writer John Chartier
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  • Lockheed awarded $200b fighter contract - Oct. 26, 2001
  • Sivy on Stocks: Parts for planes - Oct. 26, 2001
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    NEW YORK (CNNmoney) - Just a handful of companies will profit directly from the Pentagon's purchase of new fighter aircraft, but the bottom lines of many smaller firms will benefit from contracts that could be worth at least $200 billion, the biggest in the history of the U.S. military.

    Lockheed-Martin Co. (LMT: down $0.92 to $49.00, Research, Estimates) stands to reap the largest gains from the initial contract awarded by the U.S. Department of Defense Friday. Analysts expect the No. 2 U.S. aerospace manufacturer to see about a 12 percent boost to earnings per share in fiscal 2002 and about a 4 percent revenue increase.

    Boeing (BA: down $3.93 to $33.75, Research, Estimates), the loser, lowered its revenue forecast by $1 billion because of the lost contract, but did not change its earnings per share outlook.

    "It's not a significant impact on numbers. It wasn't in Boeing's plan," J.P. Morgan aerospace analyst Joseph Nadol said of the strike fighter's impact on Boeing. "The bottom line is there's a glut of aircraft worldwide, even if traffic recovers domestically to pre Sept. 11 levels, it's going to take significant numbers for a recovery."

    However, losing the contract added pressure on Boeing's stock, which has been sliding amid declining commercial jet demand after the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon. On Monday alone, the stock was down about 10 percent.

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    Aside from Lockheed, one of the major beneficiaries of the contract is United Technologies Inc. (UTX: down $2.57 to $54.44, Research, Estimates) , whose Pratt & Whitney division captured a $4 billion deal to build the engine for the joint strike fighter. Pratt & Whitney will develop the propulsion and lift systems to enable the plane to operate conventionally as well as from aircraft carriers and areas with little or no runways.

    Other companies likely to grab a piece of the strike fighter include Northrop-Grumman (NOC: down $0.70 to $102.30, Research, Estimates) , which along with Raytheon (RTN: down $0.72 to $33.28, Research, Estimates) , will develop the plane's radar systems.

    Northrop will get about 20 percent of the total contract, estimates Paul Nisbet, an aerospace analyst with JSA Research Inc.

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    BAE Systems (BA-.L: up $5.00 to $350.00, Research, Estimates) , the former British Aerospace Co., based in the United Kingdom, will produce many of the electronic warfare components used on the fighter.

    And Goodrich Corp. (GR: down $1.25 to $21.36, Research, Estimates) will provide the landing gear.

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    Lockheed-Martin's X-35 is the government's choice for new joint strikefighter(Source: Lockheed-Martin)
    Honeywell International (HON: down $0.10 to $29.90, Research, Estimates) said Monday it expects to book $5 billion in revenue from the strike fighter's landing systems, onboard oxygen-generating systems, engine components and the power and thermal management system.

    However, Paul Nisbet, aerospace analyst at JSA Research Inc., cautioned that financially troubled Honeywell, whose proposed merger with General Electric Co. (GE: down $1.45 to $37.43, Research, Estimates) fell through over the summer when the European Union failed to approve it, could be hyping up its role in an effort to boost shares.

    "Honeywell is trying to offset the horrible situation they have on the commercial side," Nisbet said. "Any news about this (from Honeywell) is like having a bucket of water thrown on you with the events of Sept. 11 and trying to dry it off with a small handkerchief."

    Click here for a look at aerospace stocks

    In addition to these high-profile companies, there are potentially hundreds of much smaller players with whom Lockheed and Pratt & Whitney will sub-contract work on the plane's systems.

    Among these are Alcoa Corp. (AA: down $0.83 to $34.05, Research, Estimates) unit Howmet Castings, which produces super alloys and titanium for jet aircraft engines, and Allegheny Technologies (ATI: down $0.48 to $15.35, Research, Estimates) , whose Wah Chang subsidiary produces specialty metals and chemicals for use in aerospace.

    Money to come over time

    In choosing Lockheed over Boeing Friday, the Defense Department cited preferences for Lockheed's overall design versus the cost, which is estimated at between $40 million and $50 million per aircraft.

    The initial part of the contract is just for development of the new jet and is worth about $20 billion over the next decade. The first jet is not scheduled for delivery until 2008. But the United States and Britain, which has committed $2 billion of its own to development, plan to buy 3,002 planes, valued at more than $200 billion by the U.S. Congressional Budget Office. And thousands more planes may be sold in subsequent years.

    The radar-evading jet, dubbed the F-35, is meant to replace the military's aging fleet of fighter aircraft and become America's primary fighter jet for the next 40 years. It is capable of standard, aircraft carrier and vertical landings.

    Both Boeing and Lockheed had competed fiercely for the project over the last several years, employing engineers and designers to develop and build a prototype aircraft.

    Boeing, which has suffered from declining commercial aircraft sales, caught a break Monday when Australia's Qantas Airways Ltd. agreed to buy 15 of its 737-800 aircraft originally destined for American Airlines Corp. (AMR: down $0.33 to $19.49, Research, Estimates) , and take options on 60 more aircraft as Qantas boosts capacity to cope with heavy domestic demand. graphic

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    Lockheed awarded $200b fighter contract - Oct. 26, 2001

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    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

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