美国国防预算：前方的混乱——告诉我你想要什么，你真正想要的是什么

US Defense Budget: The chaos ahead - Tell me what you want,what you really really want As we previously said,we see little chance of President Trump’s full $1.5 trillion 2027defense budget passing, even using reconciliation funding(see, “US Defense: Trump's$1.5 trillion budget? Lots for space, ships, and missiles - But, what will ultimately pass?”). Weexpect no Democratic support, so reconciliation must be used. It could be derailed by justa few House Republican deficit hawks or those who are concerned with further healthcarecuts. We expect pressure from the White House will bring them on board. But, if Democratswin either chamber in November, expect no progress on appropriations until next year, eventhough most Democrats should support higher defense spending (but, not $1.5tn). Thereare still takeaways from this budget, including priorities: Douglas S. Harned, Ph.D.+1 917 344 8430douglas.harned@bernsteinsg.com Adrien Rabier+44 20 7676 6820adrien.rabier@bernsteinsg.com Jennifer Ma+1 917 344 8408jennifer.ma@bernsteinsg.com 1.Bias is heavily toward investment(Procurement and RDT&E), which means even ifthere is a significantly lower top line increase (e.g.,, to $1.1tn), we would likely still see ahuge increase for defense contractors. This is positive for defense stocks. Specialist Sales Steve Song+1 917 344 8401steve.song@bernsteinsg.com 2.The budget process has high risk.If approriations are not passed by October 1stwewould likely enter another continuing resolution (CR). But, the 2026 budget includes$155bn in reconciliation funding. The level in a CR would NOT include that funding,meaning a substantial decrease in defense spending during a CR, should Republicansfail to pass a reconciliationi bill in advance. 3.The submitted budget may be difficult to spend. There are items that appear poorlydefined. We expect pushback on those line items by Congress, as we saw in the 2026budget. DoD is already under pressure to get items under contract from the currentbudget, after a record long CR. Also, It appears unlikely that production ramps in manyareas can be accelerated much more than the current plan. 4.Budget priorities are clear: Space, missiles, missile defense, shipbuilding.Even a lower budget total should grow these areas. Space increases fall heavily onclassified programs. Missile and missile defense spending appears in line with growthframeworks for LMT and RTX. Shipbuilding receives a huge increase. But, timing of thatimpact for GD and HII revenues is less certain. There are some important increases toaircraft spending (e.g., P-8A, F-35, F-47, CH-53K, C-130J, CCA). For the companies, we still see LHX as a strong beneficiary, given its leverage to new-gen space and missiles/missile defense interceptors through its solid rocket motorbusiness. Huge increases are requested for missile defense interceptors and systems forRTX (LTAMDS, SM-3) and LMT (PAC-3, THAAD). RTX and LMT also benefit from tacticalmissile funding growth (e.g., AMRAAM, Tomahawk for RTX and PrSM, JASSM, LRASM,JATM for LMT). These budgets, depending on what is passed, should help cement growthframeworks for LMT and RTX. NOC benefits from more solid rocket motors and next-genspace. In the proposed budget, spending on Boeing’s P-8A and F-47 are up. GD and HIIwill benefit from shipbuilding budget increases. But, the question for shipbuilding is aboutgetting throughput up even if more money is in the budget. Ground vehicle funding is soft,with BAE’s AMP-V a notable exception and more money for XM30 (GD and RHM compete). BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS The rising defense budget is positive for all US defense contractors. If one assumes the Pentagon gets what it wants throughthe combination of its own request and reconciliation funds added for 2026, we see this as better than expectations. Thebiggest beneficiaries should be those in space, missiles, missile defense. Shipbuilding could also be an important upside here, ifthe spnending can be tied to throughput. DETAILS OVERALL BUDGET - KEY TAKEAWAYS FROM THE PROCESS AND STATED PRIORITIES We doubt this bill can pass - But, it still would be positive to reach $1.1-1.2 trillion The Trump budget proposal for FY2027 is $1.45 trillion for DoD ($1.5bn including DoE nuclear) - up from 1.0 trillion forFY2025. Roughly $350bn of the budget is targeted to come from reconciliation funding, which can avoid the 60 vote thresholdin the Senate. That reconciliation portion could change as budget negotiations begin. We do not expect this budget to make itthrough Congress. It should have no Democratic support, given cuts to health care and other non-defense spending. We expectsome Republican deficit hawks to also oppose this budget, although defense hawks in the Senate have spoken in supportof the high spending levels. Further cuts to healthcare could also prove unpopular among some Republicans. Should 3 to 4Republicans vote against reconciliation, that could stop the reconciliation bill.