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News From Washington

June 1, 2002
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News From Washington


S&P Releases Aerospace & Defense Industry Survey

Standard & Poor's has released its six months forecast for the Aerospace & Defense Industry, recommending investors caution regarding defense companies for the near term, the war on terrorism and concerns in the Middle East notwithstanding. The leader in global financial research and investment analysis says that the current military action in Afghanistan will not necessarily lead to outsize long term earning growth and return on capital for defense contractors. The forecast is part of Standard & Poor's Industry Survey on Aerospace and Defense, a study produced every six months by the firm's senior equity analysts. Standard & Poor's Industry Surveys series keep a watchful eye on 52 US industries, offering insights into trends and conditions that affect leading companies' market performance.

The Industry Survey for the Aerospace and Defense Industry looks at the issues affecting all segments of the aerospace and defense industry, including: the commercial aircraft market (large jet, regional jet, small jet and business jet segments) and the impact for airframe manufacturers such as Boeing and General Dynamics; the impact of procurement reforms on defense companies cash flow and ROE; and the challenges ahead for the space industry after the '90s boom that was fueled by the telecommunications industry investments in satellites.

"The defense industry's demand drivers are much more volatile than is widely believed, and increased domestic pressure for spending on social issues means that we are not likely to see Congressional approval of new, outsized Pentagon spending programs," said Robert Freedman, CPA, Standard & Poor's Aerospace & Defense analyst and author of the survey. "Adding to this constraint, many of the defense projects which are poised for approval, like missile defense, are lower-margin, R&D programs for contractors," he continues. "These factors could materially hamper earnings growth for pure-play defense companies like Lockheed-Martin, Northrop-Grumman and Raytheon. Given current prices, investors in defense stocks may be setting themselves up for disappointment down the road."

New Radionavigation Plan Focuses on GPS

US Secretary of Transportation Norman Y. Mineta and US Secretary of Defense Donald H. Rumsfeld announced the release of the 2001 Federal Radionavigation Plan (FRP), which continues to strengthen the US commitment to the Global Positioning System (GPS) and its modernization as a primary means of navigation in support of the US transportation infrastructure.

"GPS offers us the capability to improve our quality of life through application across almost every mode of transportation," said Secretary Mineta. "However, the transition to GPS from current systems and the determination of what part of the current radionavigation infrastructure to retain is a complex matter involving government, industry and users. We are seeking a sensible transition to satellite-based navigation services as our primary means of navigation, while recognizing the need to maintain back-up navigation aids where required."

The 2001 FRP includes revised schedules for phasing down most land-based radionavigation systems to allow more time to transition to GPS. The US Department of Transportation (DOT) will continue the policy stated in the 1999 FRP to operate the Loran-C in the short term while the administration continues to evaluate the long term need for the system. DOT soon will be completing studies on Loran-C that will help make a decision on the system in 2002.

Beginning with this edition, federal radionavigation information previously contained in a single document will be published in two separate documents, the Federal Radionavigation Plan and a companion document entitled Federal Radionavigation Systems (FRS). The FRP includes the introduction, policies, operating plans, system selection considerations and research and development sections, and will allow more efficient and responsive updates of policy and planning information. Sections relating to government roles and responsibilities, user requirements and systems description have been moved to the companion FRS and will be updated as necessary.

The FRP, a joint product of the Departments of Transportation and Defense, is mandated by the National Defense Authorization Act for fiscal year 1998, which also requires that the plan be revised and updated at least every two years. Secretary Mineta commended DoD's continued cooperation in producing this policy and planning documents.

Free copies of the 2001 FRP/FRS are available on CD-ROM from the Volpe National Transportation System Center, Kendall Square, Cambridge, MA 02142. The 2001 FRP is also on the Internet at http://www.navcen.uscg.gov/ pubs/frp2001.

Commerce Secretary Evans' Remarks at Broadband Technology Expo

Commerce Secretary Don Evans made the following remarks at the Broadband Technology Expo in Washington, D.C. on March 6, 2002:

As the President has made plain, economic security is a top priority for his administration. The high tech industries represented here are the backbone of the American economy in terms of jobs and growth.

  • We are here to talk about another issue vital to America's economic security: high speed access to Internet - broadband. The President understands the need to make broadband available to every American, from every walk of life.
  • Innovations like broadband are absolutely vital to US economic security. Technology advances are credited with 50 percent of US growth since WWII.

    IT alone accounts for two-thirds of productivity growth. In turn, productivity growth reduces price inflation.

    IT accounts for one-quarter of US economic growth, so it will help speed economic recovery.

    Over the next 10 years, broadband is expected to add half a trillion dollars - $50 B a year - to the economy. And building the national broadband network will create over 1 million new jobs.

  • Broadband is the next step in the Internet revolution. It makes Internet surfing seem like riding on a super-fast bullet train, unlike today's slower connections.
  • Broadband access and services will revolutionize the way people use the Internet and will provide valuable services to consumers.

    Long-distance learning will bring opportunity to people in places where little or none exist today. Ninety percent of American colleges and universities by 2005 will provide education to anyone who can log on, whoever they are and wherever they live.

    The real promise of telemedicine envisions people getting home check-ups...24-7 monitoring of patients without confining them to a hospital bed...real time second opinions from the world's foremost experts.

    High speed connections will let airport security officials match passenger data against the most current biometric or national security databases. Broadband allows companies to store valuable data off-site, protecting it from a disaster or terrorist attack, such as we saw on September 11th.

    Most of our best ideas and innovations come from small businesses. They are well represented here, because they are the ones who will come up with those "killer" applications that will stimulate widespread deployment of broadband technology.

  • So the question is: How are we going to make our vision for a new, high speed Internet world a reality? How are we going to get more people using broadband? Answer: Create the right environment...that is precisely what the Bush Economic Plan is all about.
  • We need to find ways to unlock demand for broadband.

    The President's Committee of Advisers on Science & Technology is looking at roadblocks to broadband deployment and usage.

    Commerce's TA & ESA held a March 25 workshop to examine productivity-enhancing applications that will drive broadband usage (such as supply-chain management and customer relations).

    Of course, we will continue to work with Congress and the FCC to further roll out broadband.

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