Defense Contractor Winners as Federal 2016 Budget Clears Congress

Both houses of Congress agreed early Friday on a $1.15 trillion federal budget for 2016. The budget bill now goes to President Obama, who is expected to sign it. The budget approval dodges a government shutdown that could have occurred next week.

About half the total spending, $572.7 billion, was marked for the Department of Defense. The big winners: aircraft makers Lockheed Martin Corp. (NYSE: LMT) and Boeing Co. (NYSE: BA). The big loser: the U.S. Navy’s Littoral Combat Ship (LCS). The ships are built in two variations by two different contractors: Marinette Marine builds the Freedom-class LCS on a contract managed by Lockheed Martin, and Austal USA, builds the Independence-class LCS as a trimaran designed by General Dynamics Corp. (NYSE: GD).

Another big loser was Senator John McCain, who was unable to get the Senate to restrict the use of Russian-made rockets in the Atlas V launch vehicle built by United Launch Alliance (ULA), a joint venture of Lockheed and Boeing. McCain vowed from the Senate floor not to give up the fight against ULA’s use of the Russian rockets.

The good news for Lockheed is that the budget includes funding to purchase 11 more Lockheed F-35 Joint Strike Fighters than the 57 President Obama requested. The 2016 budget includes $1 billion to purchase seven Boeing EA-18G Growlers and five F/A-18 E/F Super Hornets for the Navy.

The Boeing KC-46A tanker is funded to its fully requested level of 12 of the planes, according to an Aviation Week report. By the terms of Boeing’s contract the company must deliver 17 of the new tankers by August 2017.
[recirclink id=303776]
Aviation Week also reports that the Long-Range Strike-Bomber program, which was awarded to Northrop Grumman Corp. (NYSE: NOC), got $510 million nicked from its budget as a result of the protest of the award lodged by the losing team of Boeing/Lockheed.

In a memo to Secretary of the Navy, Defense Secretary Ashton Carter noted that the U.S. armed forces are a “warfighting force” and that the LCS ships geared to what is known as “presence” operations, which are essentially peacetime demands to show the flag around the world. The Defense budget cuts the number of LCS ships from 52 to 40 while it increases the amount spent on carrier fighter planes. The Navy will also purchase an additional 31 F-35Cs than originally planned.