Pentagon budget seen benefiting Boeing, GD

Defense News ~ WASHINGTON, Jan 24 (Reuters) - The U.S. Defense Departments's fiscal 2011 budget request includes funding for many ships, airplanes and other weapons programs, according to draft documents obtained by Reuters.
Following is a list of how the budget, to be released on Feb. 1, is likely to affect top U.S. defense contractors:
BOEING
The budget again calls for termination of Boeing Co's (BA.N) C-17 transport plane, but the company, the Pentagon's No. 2 defense contractor, has already begun to prepare for the eventual end of that production line, mounting aggressive efforts to capture a few more orders overseas.
On the plus side, the budget seeks $2.5 billion in additional funding for the electronic attack variant of its F/A-18 fighter over the next two years, and points to at least five more orders for the base F/A-18E/F fighter beyond those initially planned in fiscal 2009 planning documents, said Virginia-based consultant Jim McAleese.
Boeing is likely to continue pressing lawmakers for even more F/A-18 orders to shore up that production line and cover an anticipated gap in carrier-based fighters until the Navy starts to receive Lockheed's F-35 carrier variant in 2015.
Boeing will also benefit from additional orders of its CH-47 Chinoook and AH-64 Apache helicopters to replace aircraft lost in battle in Afghanistan and Iraq, said McAleese.
On the downside, the company had lost revenue through the cancellation of the Army's Future Combat Systems program and President Barack Obama's plans to scale back missile defense programs.
GENERAL DYNAMICS
The budget includes a solid $14.1 billion in money for shipbuilding, including several programs that will help General Dynamics (GD.N), the fourth largest U.S. defense contractor, said McAleese.
General Dynamics also appeared poised to benefit from ammunition orders and upgrades to its wheeled Stryker vehicles, which were initially developed an interim solution, but now seemed to have more "of an air of permanence," said Rob Stallard, analyst with of Macquarie Securities.
An Army list of its equipment needs for the fiscal 2011 war budget included $445 million for Stryker upgrades, according to documents obtained by Reuters this week.[ID:nN20162904]
Army officials, keen to get started on the proposed upgrades before the fiscal 2011 budget can be enacted into law,are now seeking to pull those funds forward into a supplemental fiscal 2010 war spending budget, which would give General Dynamics a boost even sooner, said one source familiar with the discussions who was not authorized to speak publicly.
The Expeditionary Fighting Vehicle that General Dynamics is developing for the Marine Corps also survived the Pentagon budget process, despite widespread speculation about its cancellation after years of technical issues.
LOCKHEED MARTIN
Lockheed Martin Corp (LMT.N), the largest U.S. defense contractor, would be hurt by a Pentagon decision to cut 10 F-35 fighters from its expected 2011 order, but the move would likely shore up the program in the longer run, said Stallard.
Deputy Defense Secretary William Lynn underscored the Pentagon's commitment to the program last week, saying the United States and its allies were sticking to plans to buy about 3,000 of the fighters overall.
Lockheed, the Pentagon's largest prime contractor, also stood to gain from the Navy's decision to truncate its DDG-1000 destroyer program, which had a Raytheon Co (RTN.N) (RTN.N) combat system, and add Lockheed's Aegis combat equipment to more DDG-51 destroyers instead, said Loren Thompson, with the Virginia-based Lexington Institute.
NORTHROP GRUMMAN
The Pentagon budget calls for cancellation of one smaller Northrop Grumman Corp (NOC.N) program, a $500 million human resources program aimed at putting Pentagon medical records in one central database, and signalled a restructuring of the company's embattled polar-orbiting weather satellite.
At least one amphibious ship that would have been built by Northrop, the No. 3 defense contractor, was also removed from the 2011 budget, and a total of eight amphibious ships were dropped from the five-year budget planner, said Thompson.
Significantly, the budget also increases the time it would take to build Northrop's massively expensive aircraft carriers to five years from four, lowering the amount of yearly revenue the company will receive from that work, Thompson said.
At the same time, the Quadrennial Defense Review to be released with the budget, underscored the Pentagon's push to beef up its cyber defenses, an area in which Northrop was very strong, analysts said.

(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn and Diane Craft)