Pentagon Budget Plan Boosts Contractors

Tuesday, 25 Feb 2014 08:17 AM

By Melanie Batley

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The Pentagon is proposing to increase weapons purchases and research spending after four years of cuts, bringing welcome news to military contractors who have been affected by reductions in the last few years.

According to The Wall Street Journal, Defense Secretary Chuck Hagel on Monday outlined a $496 billion budget for 2015 that would trade limited cuts for new investments in cyberwarfare capabilities, $1 billion for more fuel-efficient jets, and plans for a new Navy surface ship.

"We now see again a marketplace in the future, even in sequestration, that actually has growth two years out," Bruce Tanner, Lockheed Martin's chief financial officer, said at a conference last week, according to the Journal.

Spending on procurement and research fell 14 percent in 2013 to $168 billion, and 4 percent to $162 billion in 2014's budget, the Journal reports.

The new budget plans, once approved, would give contractors more certainty and allow them to make longer term investment decisions.

As news of the Pentagon's plans emerged, shares in major defense contracts spiked, and all but three of the Pentagon's largest contractors registered 52-week highs.

The Pentagon emphasized its commitment to Lockheed's F-35 fighter along with a new aerial tanker being developed by Boeing and a proposed long-range bomber. It also plans to buy more of Northrop's unmanned aerial vehicles.

The planned cuts involve canceling an Army combat vehicle and halting purchases of the Navy's littoral combat ship.

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