Zacks Industry Outlook Highlights: Lockheed Martin, L-3 Communications, General Dynamics, The Boeing and Northrop Grumman

CHICAGO, Jan. 27, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the Aerospace & Defense industry, including Lockheed Martin Corporation (NYSE: LMT), L-3 Communications (NYSE: LLL), General Dynamics (NYSE: GD), The Boeing Company (NYSE: BA) and Northrop Grumman Corp. (NYSE: NOC).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at  

http://www.zacks.com/stock/news/68572/Aerospace+and+Defense+Stock+Outlook+-+Jan.+2012

The big defense operators armed with strong balance sheets are expanding their operations inorganically through acquisitions. The U.S. Defense department also endorses mergers among U.S. defense companies, provided they don't involve the top five or six suppliers acquiring each other.

These strategic deals besides increasing the size of the combined entity allow access to new markets. It also helps cut down on competition at least by one in a thickly competitive space.

Lockheed Martin Corporation (NYSE: LMT) bolstered its product portfolio by acquiring Procerus Technologies, a company specializing in autopilot and other avionics for micro unmanned aerial systems.

Another defense major

L-3 Communications (NYSE: LLL ) decided to acquire the Kollmorgen Electro-Optical (KEO) unit of Danaher Corporation. This unit will enhance L-3's product suite with products like submarine photonics systems and periscopes, ship fire control systems, visual landing aids, ground electro-optical and sensor-cueing systems.

General Dynamics (NYSE: GD) acquired Microtecnica, a leading provider of flight control actuation systems for helicopter and Winslow, a provider of life rafts to the corporate aviation, helicopter and marine markets. These two acquisitions will further help the company to make headways in the aviation industry.

Another way to share the defense order pie is via strategic alliances. The defense operators at times join forces with each other, bring along their individual expertise in the table and work as a cohesive unit for big defense deals.

The Boeing Company (NYSE: BA) teamed up with Northrop Grumman Corp. (NYSE: NOC) for a development and sustainment contract from the U.S. Missile Defense Agency. The skills and expertise of the defense majors were needed for the development, integration, testing on the Ground-based Midcourse Defense element of the United States' ballistic missile defense system.

Boeing also allies with international partners to increase efficiency through exchange of technology. To explore and develop new opportunities in the missile defense arena, Boeing has had an alliance with Israel Aerospace Industries for the past 10 years.

The U.S. Army awarded a contract to Lockheed Martin and Northrop's joint venture company, LONGBOW Limited Liability Company, to enhance the Lethality of the Apache helicopter. This new contract will upgrade the fire control radar system of the Apache and provide situational awareness and actionable intelligence to the war fighters.

The defense operators are clinching international orders that to some extent are making up for the lost ground from the US budget cuts. One of the big developments is Japan Ministry of Defense's selection of Lockheed's F-35 Lightning II as Japan Air Self Defense Force's next generation fighter aircraft. The award win resulted from a competitive bid process.

Boeing received an order from the Kingdom of Saudi Arabia for 84 new F-15 fighter aircrafts and to upgrade 70 existing F-15s. Besides, Boeing also received orders for 70 new AH-64 Apache strike helicopters and 36 AH-6i helicopters, plus support and training. This slew of orders would boost Boeing's top line by $24 billion.

General Dynamics' business unit in Europe received a contract from the Swiss Army to supply 70 DURO Armored Personnel Carriers, having a capacity to carry up to 11 soldiers. These vehicles will help the Swiss Army to protect its personnel and carry on with its peace-keeping missions.

At the macro level, a gradual shift in defense spending patterns can be discerned. In response to asymmetric terrorist threats, the emphasis appears to have shifted to high-tech intelligence equipment, replacing demand for conventional big guns and heavy armor. The major industry players have, in response, resorted to bolt-on acquisitions to plug gaps in their product offerings.

The defense operators are working continuously to improve its existing product offering and refashion tailor-made products to cater to the critical needs of customers. Technological advancement is key to upgrading defense operations of whole nations.

Among state-of-the-art products, the latest radar and telecommunication systems, new ballistic missiles, unmanned warplanes, development of fighter jets, and sophisticated surveillance equipments are in the priority list of most countries. These help enhance the preparedness of a nation to detect, preempt and counter hostile situations.

The past two decades have seen a dramatic change in the geo-political landscape with the formation of 34 new countries. A new country comes into existence from the erstwhile undivided country mainly due to political difference and demand of the people living in that region. These countries also bring in fresh demand of weapons to protect their sovereignty, which boosts the order books of the defense operators. The latest addition to the list of new nation is South Sudan, which gained independence in 2011.

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