Sunday, March 22, 2009

Why America’s defence industry is in for some lean years
So far this year the S&P 500 index has fallen by 14%, but defence shares have fallen by 22%. The cloud hanging over the industry is the gloomy conviction that after eight years of George Bush, during which the Pentagon's budget more than doubled to $666 billion, Barack Obama is determined to change things.

The reduction in spending is not exactly imminent. The budget for 2010, which will be announced next month, was largely set by the outgoing administration and will be close to 2009's $654 billion. Because of the winding down of operations in Iraq, the Office of Management and Budget currently expects a 4% increase in base funding over 2009—not exactly short rations. It is what will happen in the subsequent years that is worrying the industry.