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U.S. DEFENSE COMPANIES BENEFIT FROM PROPOSED 05 BUDGET

30 Jan 04. The proposed 2005 U.S. defense budget spells good news for U.S. contractors, especially Boeing Co. (NYSE:BA – News), given the huge boosts for missile defense and a high-tech program to modernize the U.S. Army.

The Pentagon’s budget request for fiscal 2005, mistakenly posted on the Internet ahead of Monday’s scheduled release, showed a $1.2 billion increase in missile defense spending and a $1.5 billion jump on the Future Combat System. Boeing has a large stake in both programs.The budget also calls for spending almost $4.6 billion for Lockheed Martin Corp.’s (NYSE:LMT – News) Joint Strike Fighter, or F-35, up from $4.25 billion requested in 2004, and $4.7 billion for the company’s F/A-22 next-generation fighter jet.

Spending was to remain nearly steady at just over $3 billion for Boeing’s F/A-18E/F Super Hornet attack jets.The U.S. Defense Department 2005 budget seeks $1.2 billion in spending for the RAH-66 Comanche, a new armed scout helicopter being developed by Boeing and United Technologies Corp.’s (NYSE:UTX – News) Sikorsky Aircraft, up from just over $1 billion in the current year, which ends Sept. 30.

The Pentagon also earmarks $4 billion for the C-17 wide-body airlift plane being built by Chicago-based Boeing in fiscal 2005, up from about $3.6 billion in fiscal 2004.

“Boeing appears well served by this budget proposal,” said Wachovia Securities analyst Robert Spingarn. Boeing is lead contractor for the ground-based missile defense program and, along with privately held Science Applications International Corp., the Army modernization.

Boeing programs fared well overall in the 2005 defense budget, a welcome respite from a spate of bad news clouding the No. 2 defense contractor in recent months, including a ban on government contracts for its satellite launch units and a criminal investigation into a proposed multibillion deal to lease and sell the Air Force 767 midair refueling jets.There is no money earmarked in the 2005 budget for the proposed Air Force tanker deal, put on hold by the Pentagon pending the outcome of the investigation.

In Navy programs, the Pentagon called for $1.45 billion to continue researching and developing the new DD-X family of warships, led by Los Angeles-based Northrop Grumman Corp. (NYSE:NOC – News) and Raytheon Co. (NYSE:RTN – News), of Waltham, Massachusetts.

The U.S. military would get 11 new V-22 “Osprey” tilt-rotor aircraft in 2005 at a cost of $1.76 billion, up slightly from $1.71 billion in fiscal 2004. Work has resumed on the Osprey, built by Boeing and Textron Inc.’s (NYSE:TXT – News) Bell Helicopter, after two high-profile crashes killed 23 Marines in 2000 during test flights.

Spending on UAVs — which played a critical role in the U.S.-led wars in Afghanistan and Iraq — would rise to $1.97 billion in fiscal 2005, up from $1.3 billion in 2004. The budget called for the Air Force to buy four Global Hawk UAVs from Northrop at a cost of $360 million, with another $336 million earmarked for further research on the aircraft. The DDG-51 Aegis destroyer, or Arleigh Burke Flight IIA class, being built by General Dynamics Corp. (NYSE:GD – News) and Northrop, would receive $3.6 billion in fiscal 2005, up slightly from $3.4 billion in fiscal 2004.

Another large item in the Navy budget remains the Virginia-class submarine, also built by both General Dynamics and Northrop, with the fiscal 2005 budget request totalling $2.6 billion, compared to $2.5 billion in fiscal 2004. Space programs, mostly run by the Air Force, also continue to account for a large share of the defense budget, including $638 million for Boeing and Lockheed satellite launch services under the Evolved Expendable Launch Vehicle program. Spending on the Space Based Infrared Systems-High (SBRIS-High), an $8.6-billion program for which Lockheed and Northrop are the main contractors, would drop to $508 million in fiscal 20

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