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Northrop Grumman Facing Cut To Large Unmanned Aerial Vehicle (UAV) Program?

|Includes:LMT, Northrop Grumman Corporation (NOC)

Today the Pentagon begins to lay out its proposed cuts to its budget over the next ten years. Reportedly these could be as high as $50 billion a year from a $650-700 billion average spending plan.

Rumors are floating that one of the casualties will be Northrop Grumman's (NYSE:NOC) Global Hawk strategic reconnaissance UAV. This is a major program for the company and has been in development and production since before 2000.

The reports are a little confusing though as the decision seems to be ending one of the three versions in production and keeping the other two. The Block 30 would lose about half of its planned quantity while the Block 40 would continue along with the naval version, the Broad Aerial Maritime Surveillance (BAMS) system.

Even though it is only part of the Global Hawk that may be cut it is still a blow to Northrop. The UAV has been one of their key programs with the Air Force, especially since they no longer sell a manned combat aircraft to the U.S. military. Revenue and earnings will suffer if the cut is made.

If the budget is reduced by the amounts predicted the American military will be buying primarily just one aircraft, Lockheed Martin's (NYSE:LMT) F-35 Joint Strike Fighter. There will be little room for another aircraft to fit in the budget.

Even though the U.S. has invested billions in UAV systems and plans to continue to do so, this decision shows that just because a company has a successful program it too may not be spared cuts or elimination.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: NOC, LMT