On Monday, defense companies Raytheon and United Technologies announced their intention to merge, in a deal that could create a $100 billion company, according to reports. The combined business potentially would be an aerospace and defense industry giant, nearly rivaling Boeing for market cap.

The defense industry has undergone significant consolidation in the past few years, as companies have acquired one another in an effort to cut production costs as competition for defense contracts has gotten more intense, according to reports.

More about the proposed merger

• The combined company will be called Raytheon Technologies, according to reports.
• The new company could have $74 billion in sales. (Boeing has annual sales of approximately $100 billion for its 2018 fiscal year.)
• The companies have emphasized that their businesses do not overlap. That’s important as various federal agencies, such as the Department of Justice and Federal Trade Commission, review the potential merger for monopoly concerns.
• Raytheon emphasized in a press release that the merger would free up cash for research into a new aerospace and defense products.
• Among current products, United Technologies produces engines for the F-35 fighter jet; Raytheon produces the Patriot missile.
• President Trump has reportedly expressed concerns that the merger could make the defense industry less competitive, and could make federal contracting negotiations more difficult.
• The deal is expected to be completed by the first half of 2020, according to sources.

More about the defense industry

The aerospace and defense industry is made up of companies that produce aircraft and spacecraft for both military and civilian use. It also includes manufacturers of military equipment, vehicles, and weapons, such as missiles and bombs.

It does not include companies that manufacture or sell guns and ammunition for hunting and recreational use. It also excludes companies engaging in non-aviation related commercial services at airports, like restaurants and shops.

The industry employs tens of millions of U.S. workers and drives billions of dollars in revenue every year. Approximately 16% of the federal budget, or more than $600 billion, goes directly toward defense and homeland security-related activities. Most, if not all of that money ends up going to companies in the defense industry.

In 2016, the sector employed 2.4 million people in the U.S. and generated $872 billion in sales.

Though there are hundreds of active firms, some of the sector’s largest companies include Boeing, Lockheed Martin, and Northrop Grumman.

The post What a Raytheon/United Technologies Merger Means appeared first on Stash Learn.

The Spartans and Mongol hordes of ancient times were embroiled in conflict—their cultures were defined by it. That’s a far cry from modern America, where only 3.5 million, or roughly 1%, of the population, are members of the military or Department of Defense.

Though a relatively small number of people actively suit up as members of the U.S. military, the costs of outfitting them have increased substantially over the years.

While a Spartan warrior needed only a spear, helmet, and shield to go to war, modern soldiers are equipped with much more than that; And often enter the battlefield in vehicles or aircraft that cost millions, if not billions of dollars.

To put it another way, modern defense is big business. It’s not merely banging on a piece of steel to produce a sword anymore. It involves researching and developing aircraft, satellites, and ever-bigger weapons.

And if President Trump is serious about getting his space army, he’s going to rely on that very same industry to get it.

What is the aerospace and defense industry?

The aerospace and defense industry comprises companies that produce aircraft and spacecraft for both military and civilian use. It also includes manufacturers of military equipment, vehicles, and weapons, such as missiles and bombs.

It does not, however, include companies that manufacture or sell guns and ammunition for hunting and recreational use. It also excludes companies engaging in non-aviation related commercial services at airports, like restaurants and shops.

Even excluding those industries, aerospace, and defense is a prodigious industry that employs tens of millions of Americans and drives billions of dollars in revenue every year.

16% of the national budget, or more than $600 billion, goes directly toward defense and homeland security-related activities. Most, if not all of that money ends up going to companies in the defense industry.

In 2016, the sector employed 2.4 million people in the U.S., and generated $872 billion in sales.

Though there are hundreds of active firms, some of the sector’s largest companies include Boeing, Lockheed Martin, and Northrop Grumman.

The American taxpayers pour an enormous amount of money into the defense and aerospace sector. While a lot of that money seemingly disappears into a black hole (literally, perhaps—you never know what DARPA is up to), a lot of it goes toward developing products and technologies that directly benefit the public.

So, what does the sector actually produce? Perhaps the easiest way to break it down is like a Navy SEAL: By land, air, sea, and beyond.

Land

While aerospace companies mostly operate in, well, the air and in space, defense companies produce all sorts of terrestrial weapons and technologies.

For example, military and defense contractors play a huge role in shoring up our national security measures, and the fact that most of America is relatively safe is due, at least in part, to these companies.

They build military bases and facilities to defend the borders, tanks and related vehicles for the military, and other arms and weapons.

Air

Defense and aerospace companies are always hard at work on next-generation fighter jets and military aircraft. They’re also churning out orders for the U.S. and other militaries, too.

One example is the current-gen Lockheed Martin F-35 Lightning II, which can cost more than $122 million per plane. Another is the General Atomics MQ-1C Gray Eagle, an unmanned aerial drone made by General Atomics for the U.S. Army at a cost of around $31 million per unit.

But while they do design and sell weapons and military equipment for governments, companies like Boeing also build airplanes for commercial enterprises, too.

Airplanes, for example, have become more efficient over the years. This has led to cheaper airfare and shorter trips.

Sea

Don’t forget about the ocean, which is not only incredibly important for national defense, but is rife with resources and is perforated with valuable trade routes. While most of our battles are fought on land and in the air, the ocean is still the world’s biggest freeway for international trade.

And while it may not seem like much has changed in ship or seafaring technology over the years, defense companies are hard at work creating next-generation ships and floating fortresses with which the U.S. and other countries can engage in military operations.

A prime example is the Navy’s newest aircraft carrier, the USS Gerald R. Ford, which was commissioned in July 2017. The nearly $13 billion ship is the world’s largest aircraft carrier and will carry the F-35 fighter jet, among others.

Space

While there’s still a need for classic military and defense equipment, the future of the sector may lie far beyond the sky—in outer space.

The U.S. and other countries have traditionally used public funds to pay for space travel and exploration, but we’re starting to see more private capital and investment enter the market.

Companies like Blue Origin and SpaceX, both founded by billionaire businessmen, are becoming integral parts of the American space program, and could soon start ferrying paying passengers past the stratosphere and into orbit.

There are also national security implications, as President Trump recently laid out in his idea for a space-based branch of the military, which could further increase public investment in the sector.

The sky may be the limit for some industries, but this probably isn’t one of them.

Want to explore the world of aerospace and defense? Check out these sector-related funds and single stocks available now on Stash.

The post What is the American Aerospace and Defense Industry? appeared first on Stash Learn.

Trump’s moonshot idea

Trump shared his moonshot idea of a sixth military branch for the first time in March during a speech in San Diego.

“My new national strategy for space recognizes that space is a war-fighting domain, just like the land, air, and sea,” Trump told a crowd of Marines during a March speech, according to reports. “We have the Air Force. We’ll have the space force.”

He recently rekindled the idea while welcoming the U.S. Military Academy’s football team to the White House. Aside from the basic concept of putting the military in space, little else is known about Trump’s proposed “Space Force.”

The military in space

While the president, at first, insisted that the idea was a joke, it’s unclear how serious he is about sending troops past the stratosphere. While outer space has traditionally been NASA’s domain, the military does have a history with the heavens.

“We have the Air Force. We’ll have the space force.”

Starting in the mid-1980s, the Air Force Space Command, also known as U.S. Space Command, has been the military’s primary conduit to extraterrestrial operations. That mostly includes the launching and operation of satellites.

If the U.S. has anything resembling a “Space Force”, then this is it—though it lacks rail gun-toting space soldiers and orbital howitzers. U.S. Space Command has probed the idea of a “Space Mission Force,” which would “prepare and present space forces as a ready force capable of operating in a contested, degraded and operationally-limited environment.”

Aside from that, the only known military space operations involve the Air Force’s one known spaceplane, the X-37B, which is unmanned and has only flown a handful of missions.

Houston, we have a problem

There are a few reasons Trump’s plan may have trouble getting off the launch pad.

First, the U.S. signed the Outer Space Treaty in 1967, which attempts to prevent countries from using outer space for “military purposes.” The treaty acts as a basic legal framework for international space law, and 105 countries are currently parties to it.

Second, the idea has to jump Congressional hurdles. The concept was actually included in the 2018 Defense authorization bill—it would have created the U.S. Space Corps, taking over the Air Force’s current space-based missions—but was given the thumbs down by lawmakers.

Finally, the Air Force has to be on board, which at the moment, it is not. When reporters asked Air Force Secretary Heather Wilson about the idea, she said that “The Pentagon is complicated enough.”

Sky-high costs, astronomical profit

Perhaps Trump’s biggest obstacle is finding a way to fund a new, space-based military branch. We don’t know what it would cost, but building an entire branch geared for zero-gravity combat would require an incredible amount of investment.

The closest thing we have for comparison is probably the creation of the Department of Homeland Security in 2003, which launched with 180,000 employees and a budget of $37.7 billion. The DHS’ most recent budget is around $70 billion.

The operating budget for a military branch is much higher, however. The 2019 budget request from the Air Force, for example, calls for more than $150 billion.

Who would benefit from a “Space Force?”

In the end, though, the creation of a “Space Force” would be a windfall for military and defense contractors—and, in turn, their shareholders.

The Department of Defense awards hundreds of billions of dollars in contracts to private corporations every year, for research, developing, and producing weapons. Companies like Lockheed Martin and Boeing are usually among the biggest recipients.

And a new branch of the military would require a lot of equipment—much of it incorporating new or yet-to-be developed technology to address the needs of extraterrestrial combat.

The post President Trump Wants to Add a “Space Force” to the U.S. Military appeared first on Stash Learn.

If approved by regulators, the multi-billion dollar deal would instantly boost Northrop’s missile-making and deterrence capabilities as competition heats up in the defense industry, and as North Korea continues flexing its might by testing intercontinental nuclear missiles capable of reaching the U.S.

Space: the next frontier

Orbital manufactures aerospace equipment, including missiles and propulsion systems, armament systems and ammunition, as well as satellites and other space components. Space is expected to be the next big frontier in defense technology, according to experts.

Northrop announced it had been awarded $328M contract from the Air Force to construct a missile deterrent shield

More specifically, by purchasing Orbital, Northrop will add to its missile-defense capabilities, the Wall Street Journal reports.

Northrop is one of the largest defense companies in the world, and one of the biggest contractors for the U.S. Department of Defense. In August, Northrop announced it had been awarded $328 million contract from the Air Force to construct a missile deterrent shield.

Competition heats up

Northrop is also reportedly vying with defense giant Boeing for the development of a ground-based missile deterrence system, and the potential acquisition comes at a time when merger and acquisition activity in the defense industry has reached record levels.

“The acquisition of Orbital ATK is an exciting strategic step as we continue to invest for profitable growth,” Wes Bush, Northrop’s chief executive officer said in a press release.  “Through our combination, customers will benefit from expanded capabilities, accelerated innovation and greater competition in critical global security domains.”

News of the acquisition talks sent Orbital stock up 20% on Monday.

More acquisitions

Earlier in September, competing defense company United Technologies said it would acquire aviation company Rockwell Collins for $23 billion, the largest acquisition that United Technologies has ever made.  

Pending regulatory approval, the tie-up of United and Rockwell would create one of the largest aerospace manufacturers in the world, according to industry analysts, and it would rank as the largest aerospace acquisition on record, according to the Wall Street Journal.

Top takeaways

The aerospace and defense industry is undergoing a wave of mergers and acquisitions, of which Northrop Grumman’s plans to acquire missile and satellite manufacturer Orbital ATK is just the latest.

The tie-up of Northrop with Orbital will boost Northrop’s missile defense technology following a contract with U.S. Air Force to continue building anti-missile technology. The news comes as North Korea continues testing intercontinental ballistic nuclear warheads capable of hitting the U.S. mainland.

The post Northrop’s Acquisition Will Boost Its Space Capabilities appeared first on Stash Learn.