Brazilian Fighter Competition: Defense Roundup (BA, LMT, RTN, NOC)
January 11, 2010 1:54 PM
According to Morgan Keegan, 2010 and 2011 may see M&A Activity in the security, safety and defense industry. The Obama administration’s Afghanistan plan will ensure a minimum of $100 billion annual spending. Large weapon platforms may face the cut while strong growth is expected in intelligence, surveillance and reconnaissance technologies, UAVs and force protection equipments.
The report also indicated that Airbus plans to end its A400M program. The A400M was expected to be an advanced aircraft that would compete with offerings from Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT). Raytheon (NYSE: RTN), which had divested its aviation division years ago, still maintains some liabilities for the aircrafts that are being leased out. One of the the companies operating such aircraft, Mesa Air Group (NASDAQ: MESA), has filed for bankruptcy and plans to drop its Raytheon obligations. Raytheon will be forced to refurbish 20 such aircraft. However, analysts expect this to have minimal impact on Raytheon.
Brazil is expected to purchase a new line of advanced fighters with an initial order worth approximately $7.2 billion. The Brazilian President is in favor of Dassault’s Rafale, however evaluation of bids by the Brazilian air force has placed Rafale at third behind Boeings’ F/18 and Saab’s Gripen. If the Brazilian government selects the F/18, then the deal will also benefit Lockheed Martin, Northrop Grumman (NYSE: NOC) and Raytheon.
The report also states that, in terms of asset turnover, most industry players are on par with each other, with Lockheed Martin being the exception and proving to be a clear outperformer.
