The sequester is a failure, even as a token of congressional
resolve to endure real austerity.
As soon as the predictable, preventable cuts to the Federal
Aviation Administration began snarling air traffic around the
country, the Senate rushed through a midnight bill freeing the
money. And the House promptly rubber-stamped it, as demanded by
airlines and frequent flyers.
The FAA was allowed to juggle internal funds to end air
traffic controller furloughs, though other federal agencies will
continue to be denied this luxury, steadily eroding vital
infrastructure, military preparedness, and regulatory functions,
all at the public's ultimate expense.
But you know who are not sweating the sequester, even a
little? Investors in defense contractors, which are still flying
high while thousands of Pentagon employees enjoy their unpaid
) shares are at a four-year high after the defense giant posted a
15% increase in earnings per share, beating the consensus
estimate by 29 cents even as revenue slipped 2%.
Most impressively, it spent $830 million during the quarter on
dividends and buybacks, a pace that if sustained for the entire
year would amount to a 10% return on Lockheed's market cap. The
dividend yield of 4.7% is no doubt a big part of the stock's
The sequester's modest effect on the government's procurement
of the troubled new F-35 stealth fighter will only serve to
increase the taxpayers' cost per jet, while doing little to stem
the long-term acquisition tab - estimated at nearly $400 billion
(not counting $1 trillion in lifetime operating expenses).
But the F-35 isn't just an incredibly expensive boondoggle.
It's also a jobs program, an exports program, and a foreign
policy tool. Israel will help make the jet's wings, and has
signed on as a key early buyer. Japan, Australia, South Korea,
and Singapore are in line too, alongside European allies.
In an insecure world, a guaranteed profit on a guaranteed
revenue slice that big is as close to a sinecure as you can get.
Many investors certainly seem to prefer it to broader exposure to
the slowing global economy. It's one reason Lockheed Martin's
shares have been advancing alongside those of cola marketers and
Other weapons suppliers are also having little trouble
squeezing extra profit from every federal dollar, for the moment.
) posted a 9% increase in operating earnings even as sales
slipped 1%, and boosted the annual profit forecast (while reeling
in revenue guidance a bit).
) saw sales and profits slip as well, yet easily outdistanced
estimates on both counts. The CEO said the sequester won't cause
any program cuts this year, but might in 2014, if political
deadlock persists. But he also noted that President Obama's
proposed budget "supported many of our largest programs."
Northrop is another F-35 beneficiary, registering a 4%
aerospace revenue increase thanks to the program. Over the last
year, it has bought back 7% of its shares, in addition to paying
a 3% dividend.
Defense stocks could get a lift later this year if the
long-sought budget deal is finally reached, if only because
continuing the stalemate won't serve anyone's political needs
much longer. And in the longer run, Dwight Eisenhower has
certainly been proven right about the military industrial
complex's staying power.
Sequesters will come and sequesters will go, but $170 million
fighter jets and billion-dollar buybacks are here to stay.
Taxpayers are on the wrong end of that money engine. But
shareholders seem to like their spot just fine.
Editor's Note: This article was written by Igor Greenwald of
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