Defense Contractors Face $3 Billion in Cuts (XLS, CSC, RTN, ITT, BA, LMT)

Investing

Published: February 13, 2012 8:04 am

The US Air Force is expecting to save about 5% — $3 billion — of its maintenance and engineering budget by consolidating services and eliminating duplication. The Washington Post notes three companies that are particularly vulnerable to the change: Exelis Inc. (NYSE: XLS), Computer Sciences Corp. (NYSE: CSC), and Raytheon Co. (NYSE: RTN).

Exelis, which completed a spin-off from ITT Corp. (NYSE: ITT) last October, has received $1.4 billion since 2001 under the existing rules. A new, consolidated contract is going out for bid soon, and Boeing Co. (NYSE: BA), Lockheed Martin Corp. (NYSE: LMT), and Bechtel Corp. have indicated that they will be in the running for the new contract.

The three incumbents all see tightening defense budgets as an opportunity to win more business by being more efficient. An company vice-president told the Post, “We see this consolidation as a chance to expand our business with the Air Force.” Raytheon and CSC spokespersons say essentially the same thing.

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