Defense cuts, Ex-Im bank weigh on aerospace companies

[September 08, 2014]  WASHINGTON (Reuters) - Commercial aviation and defense companies are grappling with dwindling U.S. defense spending, an uncertain fate for U.S. export financing and questions about the readiness of the Pentagon's top weapons program, the F-35 Joint Strike Fighter.

After surging in 2013, both sectors have struggled in 2014 as investors feared more cost pressure on defense contractors and an end to the boom in commercial aircraft orders.

The 10th annual Reuters Aerospace and Defense Summit will delve into these and other questions in meetings with top government officials and executives from U.S. and European aerospace and defense firms in Washington, D.C., Sept. 9-11.

The failure of a Pratt & Whitney F135 engine in June grounded the entire fleet of Lockheed Martin Corp's F-35s for several weeks during the summer, thwarting the advanced warplane's international debut at two UK air shows.

Pentagon officials and executives from Lockheed Martin, engine maker Pratt & Whitney, a unit of United Technologies, and Britain’s BAE Systems PLC will provide insights about the world's biggest arms program – a $400 billion effort to develop a new multirole fighter that will replace over a dozen older plane models now in use around the world.

Against a flat sector, as measured by the Thomson Reuters North American Aerospace and Defense Index, Lockheed has surged 16 percent this year, while United Technologies has fallen 4 percent and B/E Aerospace has slipped 3.7 percent.

Bombardier Inc's ground CSeries jet is due to resume flying this month after the failure of an engine also built by Pratt & Whitney.

Executives from Airbus Group and Boeing Co will discuss the challenges they face as they speed up commercial jet production and introduce new fuel-saving models over the next few years.

Both companies booked more than 1,000 new orders in the first eight months of the year, defying critics who said an order bubble was set to burst, and the companies are delivering record numbers of new jets. Investors are still cautious about the outlook. Boeing stock has slid eight percent this year, after logging an 80 percent gain in 2013. Airbus is down 12 percent.

The officials and executives will also address policy implications of recent airline disasters in Ukraine and Malaysia and the latest drive by critics to dismantle the U.S. Export-Import Bank, a key source of financing for customers seeking to buy Boeing commercial airplanes.

Continuing cuts in U.S. military spending are another concern at a time of sustained crises in Ukraine, the Middle East and Africa. Mandatory cuts in the Pentagon's budget are due to resume in fiscal 2016 after a two-year pause unless U.S. lawmakers rescind them.

Speakers will also take a closer look at progress on a mammoth overhaul of the U.S. air traffic control system that helps airlines navigate crowded air routes – a project that requires about $1 billion a year in spending.

(Reporting by Alwyn Scott and Andrea Shalal; editing by Andrew Hay)

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