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25 Jan 12. The global defence industry is bracing itself for the first details of impending spending cuts at the US defence department, by far its single biggest customer. Leon Panetta, US secretary of defence, is due to reveal on Wednesday how the US military will make a minimum $487bn of savings over the coming decade. For defence companies such as Lockheed Martin, Northrop Grumman and BAE Systems, it is merely the beginning of an industry-changing era of austerity following the decade-long boom the sector has enjoyed on the back of wars in Iraq and Afghanistan that are now drawing to a close. Analysts expect the scale of the cuts to put pressure on revenues and profits across the board. JPMorgan anticipates organic revenues at the largest contractors to decline about 5 per cent in 2012, and another 5 per cent in 2013. Eventually the cuts could lead to a reorganisation of the sector, with companies shedding their poorer performing assets and new players from Israel to the UK entering the market to provide the fighting equipment of the future – advanced computer-driven programmes, such as UAVs (drones), cyber security, surveillance, and autonomous systems. Traditional defence contractors will have to find “the courage to shrink,” says John Dowdy of McKinsey. He sees little room left for big mergers after the consolidation of the 1990s that left the top 10 companies controlling 60 per cent of the market. Senior defence officials have made clear publicly that the department has little appetite for even stronger concentration among its suppliers, he notes. Instead he said, companies will have to sort out or shed the poorer performing assets they took on with their acquisitions. In the past 12 years “the rising tide lifted all boats,” he said. But that is no longer the case and poorer performers are going to run out of new orders quickly. He pointed to the example of Northrop Grumman spinning off its ailing shipbuilding business last March as an example of the future trend. Many of the military’s cuts are expected to come at the expense of the army and marines as Washington turns from fighting ground wars to relying on its navy and air force to spread its influence, particularly in Asia. This would lead to fewer vehicles, munitions, radios, ground-based electro-optical equipment, hitting companies such as BAE Systems, General Dynamics and L-3 Communications that generate between 15 and 35 per cent of their revenues from sales to the US army alone. New projects are also at risk. Even the F-35 fighter jet may not entirely avoid the cuts due to its long-running development problems and sheer scale. Rob Stallard, with RBC Capital, estimates up to 175 jets could be cut from the plan over five years. This would not only hit Lockheed Martin, Northrop Grumman and BAE, the main companies involved, but also defence departments, from London to Tokyo for whom the average cost of an F-35 would subsequently rise. In many respects, however, the 2013 fiscal year budget is but a prelude to a more painful budget fight. With the failure of the supercommittee to agree a deficit reduction deal, the Pentagon faces a further $500bn of cuts over the next decade starting in January 2013. Though many observers believe it may not come to such drastic measures, they say political inaction could lead to delays in defence procurement as officials become cautious about making expensive purchases for which they risk later being criticised. For companies that means less clarity in an industry that relies on programmes that often cost billions of dollars and take decades to complete. (Source: FT.com)

26 Jan 12. AMETEK, Inc. (NYSE: AME – News) has acquired O’Brien Corporation, a leading manufacturer of fluid and gas handling solutions, sample conditioning equipment and process analyzers from Industrial Growth Partners for approximately $175m. Based in St. Louis, MO, O’Brien Corporation has annual sales of approximately $80m. O’Brien’s products and solutions

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