03 Mar 13. Lockheed warns on defence cuts. Contract terminations, factory closures and thousands of job losses could result from across-the-board spending cuts that several US defence suppliers had predicted would be averted, Lockheed Martin, the country’s biggest military supplier by sales, has warned. Lockheed, which manufactures the F35 joint strike fighter and F22 stealth fighter, gave its assessment of the likely effect of cuts – known as sequestration – in its annual 10K results filing with the Securities and Exchange Commission, published late last week. Lockheed and some other military contractors, including Raytheon, the missile and warship maker, predicted when announcing full-year results in January that sequestration cuts would be avoided. Lockheed estimates that over 10 years, sequestration will cut the US defence budget by about the same amount as the $487bn, 10-year programme of spending cuts that started with the fiscal year to September 30 last year. Lockheed says in the 10K filing that it does not know sequestration’s “specific effects” but that there would be “significant consequences” for Lockheed Martin and the defence sector. Raytheon said it was working with its customers to “attain guidance” on when cuts might be made. The ratings agency Moody’s said sequestration posed only a “modest near-term credit risk” for most defence contractors. But a deal to rebalance US government spending could cut military spending sharply. Loren Thompson, a defence analyst for the Virginia-based Lexington Institute, said many big military procurement programmes had already been cut severely. The defence contractor most exposed to the services market – General Dynamics – took $2.3bn in impairment charges in the fourth quarter, mostly for writing down by $1.99bn the value of its information systems and technology group. (Source: FT.com)
07 Mar 13. UK defence industry: primed and ready. When the bosses of three UK defence contractors announce in one week that they are potentially on the acquisition trail, there is the risk of a mid-air collision. Cobham was the latest company to signal its growth intentions on Thursday, as it looks to offset a stalled defence business. Meggitt and Ultra Electronics, also reporting this week, suggested that they, too, were on the lookout for opportunities. Likely targets are the civil aerospace, marine, energy and high-value defence sectors. Finding value-adding targets will be tough. Second- and third-tier aerospace and defence contractors are in an undoubted bind. Their defence arms are caught in the downturn caused by shrinking US and European defence budgets. Meanwhile, civilian aerospace is roaring ahead. This is where companies seem to be casting the most acquisitive eye. Multiples in the sector, though, already include a substantial bid premium. Cobham chief executive Bob Murphy says his company could have £800m to spend on acquisitions. Even that sort of cash may not buy very much. Moreover, there are two big issues facing aerospace and defence groups looking to bulk up or rebalance through acquisitions. One is about the civilian aerospace cycle. Boeing and Airbus predict growth to the end of the decade, and their order books continue to swell. But Airbus’s order intake in 2012 was 22 per cent lower than in 2011. There must be a risk that companies on the hunt for acquisitions arrive late for the party. The other is whether to focus on product or geography. Defence budgets are not just shrinking; they are moving into areas such as cyber security. That is as true in emerging markets as at home. Moreover, defence spending cuts will end at some point. It would be unfortunate if, a decade from now, these companies find themselves lamenting their overexposure to a declining civilian aerospace industry. (Source: FT.com)
07 Mar 13. Lagardère plans EADS stake sale. Lagardère, the French media group, said on Thursday that it expected to sell its 7.4 per cent stake in EADS, the aerospace ma