Winners and Losers in the Defense Plan

(page 2 of 2)

Story Tools

Bummer for Boeing?

Missile defense was a big loser, with spending cut by $1.4 billion. Gates said the Pentagon was focusing more on intercepting missiles from rogue states and in the combat theater and less on long-range missile intercepts. The agency is cutting back sharply on a new ground-based missile unit being built up in Fort Greely, Alaska. The Pentagon once hoped to have as many as 100 of the interceptors, but now will stop well short of that. That's bad news for Raytheon (RTN), which makes the warheads; Orbital Sciences (ORB), which makes the missile bodies; and Alliant Techsystems (ATK), which makes the booster rockets. Gates also canceled a second airborne laser aircraft, a Boeing program that has been going in fits and starts for two decades.

Indeed, Boeing may emerge as one of the biggest losers in the day. That's because the company's massive $160 billion Future Combat Systems is under attack. The Pentagon is cutting all vehicle development for the program. Gates said the Future Combat System vehicles, designed nine years ago to be low-weight, fuel-efficient vehicles with less armor, "do not adequately reflect the lessons of counterinsurgency and close quarters combat in Iraq and Afghanistan."

Out at sea, General Dynamics' (GD) Bath Iron Works in Maine seems to be a winner, picking up two new destroyer awards. Gates said Northrop Grumman's Ingalls shipbuilding unit in Mississippi, on the other hand, still has negotiations for its destroyer contracts. Gates said both yards may see less work in the future if contracts aren't renegotiated.

The controversial VH-71 Presidential helicopter, Marine One, led by Lockheed but built with parts by Bell Helicopter (TXT), GE (GE), and more than 200 American companies across 41 states, is getting axed. The program was originally designed to provide 23 helicopters to support the President at a cost of $6.5 billion. Today, the program is estimated to cost over $13 billion, has fallen six years behind schedule, and runs the risk of not delivering the requested capability, Gates said. He's also shooting down the Air Force Combat Search & Rescue X (CSAR-X) helicopter program, which Boeing had initially won but was being challenged by rivals Lockheed and Sikorsky (UTX).

Tiny General Atomics is once again a winner thanks to its Predator unmanned aerial vehicles. Gates said he wanted 50 more of those, a 62% increase over the current level.

Business Exchange related topics:
Defense Industry
Lockheed Martin
Northrop Grumman
Boeing vs. Northrop Grumman

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.