- The Washington Times - Tuesday, February 5, 2002

The details of President Bush's $379 billion proposed defense budget for 2003 revealed few surprises yesterday, and analysts downplayed any talk of specific defense contractors being named winners or losers.
Nevertheless, major defense firms including Bethesda-based Lockheed Martin Corp. and Seattle-based Boeing Co. are expected to reap financial benefits of the president's $48 billion proposed spending increase, which sets aside big chunks of money for new fighter planes and missiles while cutting naval vessel spending.
Funding for development of the Joint Strike Fighter, the first plane to take off vertically and fly at supersonic speeds, will increase from $1.5 billion in 2002 to nearly $3.5 billion in 2003 under the president's budget. Lockheed Martin won the contract to build the JSF last year, beating out Boeing in the largest defense contract ever awarded. The proposed budget also calls for a 34 percent increase in spending on the F-22, another advanced fighter that is produced largely by Lockheed Martin and will eventually replace the F-15. The Pentagon will request 23 of the $200 million planes, up from 13 in 2002.
Lockheed Martin said the proposed increases were not surprising.
"It's my understanding that the increases came according to existing schedules," said Greg Caires, spokesman for Lockheed Martin Aeronautics. "This is an expected development."
Lockheed Martin, Raytheon and Boeing will see increases in Pentagon spending on their missile programs. Under the president's budget proposal, the Navy will spend $240.1 million on Raytheon's Tomahawk cruise missiles in 2003, about $90 million more than 2002, while also increasing spending on Raytheon's rolling airframe missiles from $42.7 million to $58.4 million. Meanwhile, the Navy will increase spending on Lockheed Martin's submarine-launched Trident II missile from $575 million to $626 million.
Other budget highlights include $3.1 billion to be spent on 44 more Navy F/A18-E/F fighters, built by Boeing and $941 million for development and purchase of 14 more Longbow AH-64 Apache helicopters.
The terrorist attacks of September 11 and the subsequent war in Afghanistan underscore the need for greater defense spending, analysts said, but some industries took a minor hit in the budget as a result. Money set aside for shipbuilding decreased from about $9 billion to $8 billion, as the cost-conscious Navy gave greater priority to pay raises and other operations to increase morale among military personnel. The Pentagon chose to cut one vessel and $1.1 billion from the budget request for ships.
Shipbuilding firms like General Dynamics and Northrop Grumman could be affected in the short term, analysts said, unless Congress chooses to intervene and reposition some money toward building another vessel.
Shares of Lockheed Martin rose 87 cents to $59.30 on the New York Stock Exchange yesterday. Northrop Grumman shares climbed 18 cents to close at $109.98. Analysts cautioned against seeing the president's budget proposal as a possible earnings windfall for defense contractors.
"The news conforms to our expectations and we see no reason to change earnings projections for the firms we follow," Merril Lynch analyst Byron Callan said in a research note. "Investors should move beyond the hoopla and the talk of 'winners' from the budget and focus on what happens next with the budget in Congress."

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