The latest issue of the SPADE investor newsletter contains some good commentary about the latest U.S. defense budget news. Highlights:
Defense firms are more diversified than they were back in the 90's when the last major cuts happened.
Firms have also been repositioning for the new defense environment by acquiring or expanding into commercial and non-defense adjacent markets -- markets that often have higher margins and hence increased profitability as compared to defense weapons systems. Commercial aircraft, helicopters; air, sea, and land robotics, and IT services; to name but a few.
Individual programs typically account for less than 5% of overall revenues; so cuts may impact a firm but not cause its collapse. Most of the firms in the SPADE Defense Index report that they receive less than 5% of their revenues from the war effort.
The 1990s “peace dividend” followed the Cold War and the early 70s decline was post-Vietnam, etc. While enemies in the world remained (ie. Soviet Union in the late-1940s to early-1950s, post WWII) the immediate threat was less than the one we just faced. Today, that is not true. Terrorism still exists. Iraq, North Korea, and others are developing and flexing their nuclear muscles.
Increased marketing to global customers is being pushed by the White House who supported marketing aerospace products overseas and making long overdue changes to export licensing procedures. This is highlighted by the recent $60 billion deal to sell defense products to Saudi Arabia. Dozens of other multi-billion dollar deals have also been announced, approved by Congress, or are in process.