Obama’s Defense Strategy May Benefit Northrop, Huntington

By Roxana Tiron and Tony Capaccio
Bloomberg Businessweek
January 9, 2012

Builders of naval vessels led by Huntington Ingalls Industries Inc. and makers of surveillance aircraft such as Northrop Grumman Corp. may benefit once President Barack Obama’s new military strategy is translated into dollars.

The strategy presented by Obama and military leaders at the Pentagon yesterday emphasizes “the Asia-Pacific and the Middle East,” Defense Secretary Leon Panetta said at a news conference. Specifics won’t come until Obama presents his budget proposal next month, the first step in an effort to cut Pentagon spending by almost $490 billion through 2021.

The approach is likely to place a premium on naval power and drones, radar, tactical missiles and aircraft in order to thwart any effort by nations such as China or Iran to deny U.S. access to strategic regions including the South China Sea or the Persian Gulf, according to Jim McAleese of McAleese & Associates, a government-contracts consultant in Sterling, Virginia.

While deficit reduction will depend in part on reducing military personnel, makers of ground vehicles may be affected by cuts in Army procurement. Companies such as Oshkosh Corp., Navistar International Corp., BAE Systems Plc and General Dynamics may be hurt by the shift in strategy, Robert Spingarn, an analyst in New York with Credit Suisse Group AG, said in a note to clients.

Force reductions and troop withdrawals from Iraq and Afghanistan may result in cutting spending on body armor, night- vision equipment, backpacks and small arms, according to a Bloomberg Government study in June by Sopen Shah, a defense analyst.

While the Pentagon strategy signaled areas that may benefit defense contractors, “we have no idea until we see the budget numbers,” said Michael Herson, president of American Defense International (ADI), a Washington lobbying and consulting firm whose clients include Northrop of Falls Church, Virginia, and General Atomics of San Diego, California.

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