- The Washington Times - Tuesday, September 18, 2001

The defense industry had one of its most profitable days in history yesterday, while nearly every other sector of the economy was pounded by investors.

Poised to take advantage of an inevitable boost in defense spending in the wake of last week's terrorist attacks, companies like General Dynamics, Lockheed Martin, Raytheon and Northrop Grumman cleaned up.

"We believe there will be a significant, immediate and sustained increase in defense investment," Prudential analyst Todd Ernst wrote. "The money is there, the political will is there, and the need is there."

Raytheon, a Massachusetts-based company with core businesses of defense and commercial electronics, may have had the best day overall. Its stock price on the New York Stock Exchange rose $6.65, or 26 percent, to close at $31.50. Shares of Lockheed Martin and Northrop Grumman rose $5.63 and $12.86, respectively, while General Dynamics saw its shares spike $6.93.

Analysts said Congress' approval of $40 billion in supplemental defense funding — twice what President Bush requested — will continue to boost the defense industry, and further budget increases down the road are likely.

"We are going to spend unprecedentedly on the defense budget," said Cliff Ransom, an analyst with State Street Research. "It's going to be a ton of money."

Not every defense contractor had a great day yesterday. Shares of Boeing Corp. fell $7.66, more than 17 percent, as airlines announced they will be cutting jobs and service.

"What's bad for the airlines is bad for Boeing," Mr. Ransom said. "But Boeing will support its customers."

The airline industry lost more than $11 billion of its market value yesterday as shares of most players in the industry were sliced in half. US Airways, already in financial straits, ended the day down $6.05, closing at $5.57 on the NYSE. The Arlington-based air carrier is losing millions of dollars every day as it waits for the reopening of Ronald Reagan Washington National Airport, its largest hub. The airline announced yesterday that it was cutting 11,000 jobs and decreasing its overall capacity by 23 percent.

The announcement from US Airways comes on the heels of Continental Airlines' cutting of 12,000 jobs and 20 percent of its flights. Midway Airlines, which had already filed for Chapter 11 bankruptcy protection, ceased operations last week in the wake of the attacks.

"The commercial airline business is going to get slammed," Mr. Ransom said.

Shares of Delta Air Lines dropped $16.61 to close at $20.64 on the NYSE, while Southwest Airlines, seen as one of the more resilient airlines by analysts, dropped $4.12 to close at $13.

Mr. Ransom said shares of Boeing will eventually rebound, because the company is well-poised to take advantage of any increases in defense spending, particularly in the area of missile defense.

"It's apparent that their first move will be down, but there's another side to this," he said. "I believe that Boeing is the single-largest player when it comes to missile defense. Boeing has more exposure and more irons in the fire than anyone on the planet."

Meanwhile, the U.S. automotive industry was left reeling yesterday. Already faced with slowing demand for cars and trucks, Ford Motor Co. announced on Friday that the attacks prompted it to cut production by 13 percent. The result yesterday was a nearly 15 percent decline in the price of Ford shares. General Motors had nearly identical results

For the first 10 days of September, auto sales were running about 3 percent to 4 percent behind the same period a year ago. But sales slowed so dramatically after last Tuesday's attacks that the falloff for the first 15 days of September is projected to be 6.6 percent, as compared with the same period last year, analysts reported yesterday.

Insurance companies were hit hard as well. Shares of White Mountains fell $39.51 to close at $322, after news last week that its One Beacon Insurance subsidiary was expected to lose $175 million as a result of the World Trade Center attacks.

Shares of Citigroup, which announced it would lose $700 million, dropped $2.85 to close at $39.60. Congress is looking into a possible insurance-industry bail-out, but company executives say that so far it is not needed.

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