Is There Money In Aircraft And Aerospace?

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Defense will always have a future in American investments, but is there any money to be made in aircraft and aerospace investments? This historical piece offers some great insight.

The unpopular plane-making section of the missile makers is in much better shape than is generally realized, now that previous losses on commercial aircraft have been completely charged off. A sharp earnings rebound seems in prospect for plane manufacturers.

Even from a military point of view, plane-making still has a long and useful life. It was a U-2 accident that dramatized the effectiveness of manned aircraft. Since U-2 planes have been able to penetrate Russian air space for years, planes like the B-70 should be able to devastate Russia in case of a war. After all, a B-52 bomber, in the words of a "white paper" released by the Defense Department April 10, 1960, "can deliver many times the explosive potential of an Atlas ICBM, with greater accuracy and selectivity."

The Pentagon's "white paper" also contended that America's bombers give her overwhelming superiority in total military strength.

Since manned aircraft are going to be in business for quite a while, there is still good money to be made delivering some manned aircraft. Grumman Aircraft Engineering Corporation, for example, is said to have contracts in hand for six military aircraft and one of their successors, plus a commercial airplane, which should maintain production, sales and earnings at healthy levels for the next four to five years.

Meanwhile, Grumman's work in the missile and space fields is increasing. Late in October 1960, for instance, the National Aeronautics and Space Administration selected Grumman to develop a l.5-ton satellite to carry star-gazing telescopes into orbit.

Like Grumman, most aircraft companies are rapidly stepping into aerospace, of course, with different speed and emphasis. Undoubtedly, companies which are dependent upon comparatively few defense projects are bound to be more vulnerable.

Because of the usual uncertainties of military contracts, defense stocks have traditionally been accorded low price-earnings multiples. For instance, even with its business completely in the new military and space sciences, Martin is still selling for only 12 times earnings, compared with 30, 40, 50 or even more times earnings given stocks of some of the small science and electronics firms which are doing only subcontract work on military projects.

It doesn't make much sense for the market to evaluate "independent" electronics issues at 30, 40 or even more times earnings while evaluating electronics outfits of comparable quality at only ten or so times just because they are part of prime defense contractors. Most of the new glamour industries, such as infrared, microwave, and optics instrumentation, are tied directly or indirectly to defense.

Good examples of old-line aircraft companies doing super-glamorous work are McDonnell Aircraft's Mercury man-in-space project and Republic Aviation's new high-powered gun-welding process which may speed fabrication of space vehicles.

Aerospace must certainly be considered a growth industry at least for companies like Martin, which had advanced sales and earnings every year since 1951, or Garrett Corporation, whose whole story is one of growth.

If any industry has sure business, it is aerospace, which is basic to U.S. existence. Former Secretary of State Dean Acheson was quoted by Eldon A. Grimm of Walston & Co. as saying that the most vital issue facing the U.S. is that of survival. It is common knowledge that for every dollar spent by the government, 56 cents goes for defense items so the future for defense is relatively secure.

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