Wow. Just wow. Secretary Gates has just announced a major remodeling of the entire Defense budget. I live-blogged as best I could on Twitter, but I'm sure I didn't get it all. Transcript is not yet available. Highlights of the Navy stuff, which I'm sure will be explored in much more detail by Galrahn et al.:
- VH-71: dead. Replacement needed but the requirements need to be fixed.
- DDG-1000: two ships in Bath, none in Pascagoula. Option for a third.
- DDG-51: try to restart the line in Pascagoula, if they can get the right contract terms
- LCS: plus one in 2010 (3 total), build the 55-ship program
- F-35: accelerate to 30 aircraft in 2010
- F/A-18: buy 31 in 2010 (I'm not sure if this is an increase)
- More $$$ for SM-3 production
- Upgrade six more Aegis ships for BMD
- Delay 11th LPD-17 to 2011
- Delay MLP to 2011
- Delay CG(X) program (and re-scrub the requirements)
- Drop to 10 carriers by 2040
- Begin a program for the replacement of the Ohio Class SSBNs
The market impacts of these announcements are interesting. A major Lockheed program is completed (F-22), and others are cancelled (VH-71, TSAT), but LMT is up 5.6% as I write. Similar big gains are seen across the defense industry -- GD 2.6%, Raytheon 5.0%, Northrop 5.3%, while the Dow is off 1.5%. Even Boeing, which is less dependent on defense, is flirting with positive territory on the news. I think this is probably a reaction to the reduction in uncertainty that was priced into the markets, rather than to any specific program changes.
Update: The transcript is available here and at the USNI Blog.