Government Defense Contractors Are Suddenly Losing Altitude

Includes: BA, BAH, LMT
by: Biz Bluetree

If you bought Lockheed Martin Corp (NYSE:LMT) on the April (into May) dip this year, between $85 and $90, you've done pretty well with your investment thus far. But, now may be time to consider exiting your position while there's still pressure in the cabin. You've already lost about six bucks per share since the partial government shutdown began last Monday at midnight and even more since coming off the mid September high of $131.60 as the aviation giant's shares closed Friday at $122.50.

If you entered your LMT position near the mid September high, consider it now a hold and look eagerly toward an end of government gamesmanship.

Things don't appear to be getting better for the country's number one defense contractor anytime soon as it's set to furlough some 3,000 workers today (Monday) who work mainly in government facilities - and whose jobs rely on federal inspectors doing their jobs (which they're not able), according to a report on and confirmed by CEO Marillyn A. Hewson who also added, the number of furloughed Lockheed employees could grow by the week as a partial government shutdown drags on.

The Bethesda, Maryland-based aviation manufacturer received $36.9 billion in federal contracts in fiscal 2012, according to a Bloomberg Government study. (U.S. fiscal 2012 ended September 30, 2012.)

The shutdown is negatively affecting the development and testing of Lockheed's F-35 Fighter Jet, according to Air Force General Lieutenant Christopher Bogden, the Pentagon's overseer of the $391.2 billion F-35 program. Flight tests have been hampered, and aircraft deliveries are also at risk, he said in a statement, according to the Bloomberg report.

The overlying problem facing the financial health of all defense contractors dealing with the partial government shutdown is the absence of government inspectors whose job it is to monitor ongoing manufacturing processes on a daily basis. The longer Democrats and Republicans game each other in Washington, dragging out the impasse, the worse it will bode for defense contractors and their employees, and potentially for investors across most sectors.

The second largest U.S. defense contractor, The Boeing Company (NYSE:BA) is also starting to feel the effects of the partial government shutdown concerning its workers in government facilities.

BA's stock, closing on a gain Friday up almost $2 per share to $117.20 (near its 52 week high of $120.38), is outperforming Lockheed Martin and other peers despite recent bad press and investor concern over highly publicized battery defect issues (since resolved) in its Dreamliner 787 aircraft, is on the verge of at least "limited furloughs" of employees next week.

The company, in protecting its $30.3 billion in defense contracts awarded in fiscal 2012 needing to be careful to maneuver correctly, may simply be hand tied by government dysfunction.

"We expect more consequences could emerge in the coming days, including limited furloughs of employees in some areas," said company spokesman, Dan Beck.

Arlington, Virginia based trade group, The Aerospace Trade Association, which counts Lockheed and Boeing among its members as well as the 13th ranked defense contractor, with a $4 billion fiscal 2012 contract, Booz Allen Hamilton Holding Corp (NYSE:BAH) - trading at $18.89 Friday - is reassigning some employees and giving others the option to take paid leave; tens of thousands of defense workers face being forced off their jobs without pay.

The trade group referred to as The Aerospace Trade Association in the Bloomberg report - integrally involved in domestic aviation who also call themselves The Aerospace Industries Association on their website - has recently published this statement there in response to the partial government shutdown,

If we don't keep moving forward on modernization with adequate funding for new technologies and capabilities our nation's air transportation system will be overcome by growing demand.

attributed to AIA President and CEO Marion C. Blakey in a panel discussion. In this writer's opinion, that statement is something for investors to ponder.

Marion C. Blakey, according to the Bloomberg report also said,

Shutting down the government has been a tragic mistake.

Due diligence in any investment is strongly advised.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.