Today, Zacks Equity Research discusses the Aerospace & Defense Industry, including: Lockheed Martin Corporation (NYSE: LMT), The Boeing Company (NYSE: BA) and Northrop Grumman Corp. (NYSE: NOC).

A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/45278/Aerospace+and+Defense+Outlook+-+Jan.+2011

Lockheed Martin Corporation (NYSE: LMT) is the biggest recipient of U.S. defense contracts, followed by The Boeing Company (NYSE: BA) and Northrop Grumman Corp. (NYSE: NOC). With the wars in Iraq and Afghanistan expected to wind down in the coming years, core defense spending is also expected to follow a downtrend. The big operators, in order to counter defense budget cuts, will most likely target mergers and acquisitions to bolster their operating prospects.

At the macro level, a gradual shift in defense spending patterns can be discerned. In response to the asymmetric terrorist threats, the emphasis appears to have shifted to high-tech intelligence equipment, replacing demand for conventional big guns and heavy armor. Major industry players have, in response, resorted to bolt-on acquisitions to plug holes in their product offerings.

Boeing has been particularly active on this front, having acquired Argon ST, a premier developer of intelligence equipment, and Narus, a provider of real-time network traffic and analytics software. Boeing further strengthened its position in the logistic command and control business through the acquisition of CDM Technologies, a software engineering company that specializes in real-time transportation and logistics planning systems for the U.S. military.

These defense operators are also entering into strategic alliances and partnerships with competitors to improve their prospects to clinch major contracts. Boeing and Northrop Grumman are in a strategic partnership to pursue the competitive development and sustainment contract for future work on the Ground-based Midcourse Defense (GMD) system for the U.S. Missile Defense Agency (MDA).

These operators are also making planned divestitures to remain profitable and better meet customer demands. Lockheed Martin has thus decided to divest its Enterprise Integration Group business due to the U.S. Government’s increased concerns about perceived organizational conflicts of interest within the defense contracting community, while the company decided to divest its Pacific Architects and Engineers Inc. business so as to cater to a different mix of services sought by customers.

Defense aircraft sales during the year were boosted by record U.S. defense spending and higher demand from international consumers. Year to date, military aircraft sales, at $64.5 billion, grew a sharp 8% from 2009 levels.

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