- The Washington Times - Tuesday, February 4, 2003

Shares of several of NASA's largest contractors fell yesterday on fears that space exploration will be grounded indefinitely following Saturday's explosion of the Space Shuttle Columbia.
Alliant Techsystems, the Minneapolis firm that makes the propulsion system used by the shuttle on liftoff, saw its shares fall $6.86, or about 12.6 percent. Shares of Bethesda-based Lockheed Martin Corp., Boeing Co. and Moog Inc., all National Aeronautics and Space Administration contractors, fell between one and 4 percent yesterday.
The Standard and Poor's Aerospace and Defense Index fell 0.67 points, or 0.36 percent.
But most analysts said any stock depression resulting from the shuttle disaster would be short-lived unless the shuttle program is permanently grounded. They said broader issues like a potential war with Iraq and a growing defense budget have considerably more effect on the value of companies right now.
"At this stage, we think making changes to our financial forecasts would be premature," wrote Merrill Lynch defense analyst Byron Callan in a research note. "Our opinions remain unchanged, even with possible risk of changes to the shuttle program."
NASA officials have said they will resume the shuttle program once the Columbia investigation is completed. Space policy analysts said the program will likely resume sooner than after the Challenger explosion in 1986, which caused a 32-month shutdown. Pressure to complete the International Space Center, which can only be serviced by the shuttle, will create an impetus to get the shuttle fleet up and flying, analysts said.
Alliant Techsystems' subsidiary Thiokl is the unit responsible for making the rocket boosters used by the space shuttle on liftoff. Alliant bought Thiokl in 2001 from aluminum maker Alcoa Inc. Thiokl has made the boosters for every space shuttle dating back to their inception in 1982.
In 2002, about 47 percent of Alliant's revenue came from its aerospace unit. In that unit, 42 percent of business came from NASA. It reported earnings of $225 million in the quarter ending Dec. 29, 2002, compared with $234 million in the comparable quarter of 2001.
Mr. Callan said the shuttle program accounts for 10 percent of his estimate for Alliant Techsystem's 2004 profits.
Moog Inc., an East Aurora, N.Y., company that helps design flight controls for the space shuttle, said it could lose as much as $2 million this year. About $3 million, or one-fourth of the company's space-shuttle revenue, stems from the refurbishment of electronic portions of the shuttle boosters after each launch. That work could be delayed, the company said.
"We, like everyone else, hope that the cause of last week's tragedy is discovered quickly and that the program resumes as soon as possible," Moog said in a statement.
Larger companies like Lockheed Martin and Boeing are expected to rebound from yesterdays losses because space systems account for a minority portion of the companies' revenue. In the case of Lockheed Martin, the company earned 28 percent of its revenue last year from its space-systems unit. But only $700 million of the company's $28 billion in revenue came from manned-space activities, including the shuttle, in 2002, according to Standard and Poor's.
Boeing, NASA's biggest contractor, pulled in $2 billion, or about 4 percent of its $54 billion in sales from manned-space operations.
Analysts said that NASA budget cuts in the last decade have caused most companies to shy away from using the space program as its prime profit driver.
Even as shares fell due to the shuttle accident, analysts yesterday insisted that defense stocks will perform well in 2003 because of a potential war in Iraq and continued efforts to combat terrorism. Furthermore, President Bush's proposed defense budget for 2004, released yesterday, calls for a 15.3 billion, or 4 percent increase in funding.
"On the balance, we think now is a very good time to own defense stocks," wrote Stephen Murphy, an analyst with CIBC World Markets, in a research note published yesterday. "War news appears to be coming to a head, and there is a chance that imminent war improves investor interest [and] valuations."

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