Pentagon buoyed by Wall Street view of defense stocks

Published May 24, 2011

| Reuters

By Jim Wolf

WASHINGTON (Reuters) - The Pentagon is very encouraged by Wall Street's response to aerospace companies and arms makers, even as U.S. defense spending flattens, the top U.S. weapons buyer said on Tuesday.

"We are monitoring the health of our industry as it is seen by the financial community," said Ashton Carter, undersecretary of defense for acquisition, technology and logistics. "And the information there is very encouraging to us."

Carter made his remarks at a Capitol Hill luncheon co-sponsored by the U.S. Senate's Aerospace Caucus and the Aerospace Industries Association, the arms makers' chief trade and lobbying group.

He spoke moments before outgoing Defense Secretary Robert Gates, in a major policy address, said his overarching goal was to "preserve a U.S. military capable of meeting crucial national security priorities, even if fiscal pressure requires reductions in that force's size."

Carter said the industry would be making adjustments to cope with a projected spending slowdown now that a post-September 11, 2001, spurt -- which nearly doubled the Pentagon's base budget -- was ending under fiscal pressure to trim the U.S. deficit.

"A strong, technologically vibrant and financially successful defense industry is in the national interest," Carter said. "And importantly, the government's interest is not short term but long-term, like those of long-term investors."

As a result, the Defense Department will promote policies and actions "that provide for the long-term innovation, efficiency, profitability and productivity growth in our industry," he said.

President Barack Obama, as part of a deficit reduction drive announced on April 13, set a goal of holding the growth in core national security spending slightly below inflation for the next 12 years. This would save about $400 billion, most of it from previously projected Defense Department spending.

Carter said he was looking frequently at the health of the industry "and how it is regarded."

The median stock price for the industry's to 20 aerospace and defense contractors is about 92.5 percent of their 52-week trading highs, he said.

Trading at this level, Carter said, shows "continuing confidence in the health of our industry that is higher than it is for global information, automotive, steel, energy, telecom and information technology sectors."

Top Pentagon suppliers include Lockheed Martin Corp <LMT.N>, Boeing Co <BA.N>, Northrop Grumman Corp <NOC.N>, General Dynamics Corp <GD.N>, BAE Systems Plc <BAES.L> and Raytheon Co <RTN.N>.

(Reporting by Jim Wolf; editing by Andre Grenon)

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