Jan. 9 (Bloomberg) -- The last defense budget the Bush administration will present to Congress showers more money on Lockheed Martin Corp. and Northrop Grumman Corp. than any of the previous seven.

The spending plan may help Lockheed add 12 percent and Northrop 15 percent this year in New York trading after each rose more than 14 percent in 2007. It will include $2.7 billion through 2013 to increase by almost 90 percent purchases of Lockheed's C-130J transports, which former Defense Secretary Donald Rumsfeld tried to kill in 2005. That's equivalent to 6.4 percent of this year's forecast revenue.

Northrop would gain $2 billion through 2011 for Virginia- class nuclear submarines, according to an unpublished Nov. 19 directive from Deputy Defense Secretary Gordon England. The company has said 2007 sales will total $31.5 billion.

Rumsfeld championed a lighter, mobile force linked by satellite communications. His ``transformation'' strategy lifted Boeing Co., which won many programs including the $161 billion Future Combat Systems of armored vehicles. With Rumsfeld gone, ``we are beginning to see the initial signs of a weakening in enthusiasm for military transformation,'' said Loren Thompson, a defense analyst with the Lexington Institute in Arlington, Virginia.

``The companies that will fare well are the ones that have programs that predated the Bush administration and will be around long after it departs,'' Thompson said.

$471.2 Billion

Lockheed's C-130J transport plane and F-35 fighter jet are the types of programs that will prosper, Thompson said. Northrop, the Navy's largest shipbuilder, and Raytheon Co., the world's largest missile maker, also are most likely to gain, he said.

The defense budget for fiscal 2008, which began last Oct. 1, is $471.2 billion, or 12 percent more than 2007, excluding the cost of the wars in Iraq and Afghanistan. President George W. Bush wants $190 billion through a supplemental budget for those conflicts.

Next month, the Bush administration will deliver to Congress its budget for fiscal 2009, the first to fully reflect the priorities of Defense Secretary Robert Gates, 64, who succeeded Rumsfeld, 75, in December 2006.

``Defense spending is going to continue to grow,'' Ronald Sugar, chief executive officer of Los Angeles-based Northrop, said in a Dec. 17 phone interview. ``Defense planners are probably very concerned, as they should be, about other threats beyond those on the front page of the newspaper every day in Iraq. A great global power like the United States needs a great navy and a great navy needs an adequate number of ships, and they have to be modern and capable.''

`Strong Support'

Lockheed, based in Bethesda, Maryland, was ``pleased'' with the 2008 budget for its aircraft programs including the F-22 Raptor stealth fighter, the F-35 Lightning II jet and the C- 130J, said Thomas Jurkowsky, a company spokesman. All were fully funded, receiving $11 billion, he said.

``All indications are that we will see continued strong support in the future,'' Jurkowsky said.

The robust outlook for U.S. defense spending makes Lockheed a ``core holding'' for Dana Investment Advisors in Brookfield, Wisconsin, said Joseph Veranth, who as chief investment officer helps manage $2.8 billion.

Lockheed has ``the best expected combination of growth and valuation,'' Veranth said in an interview. It's especially attractive when compared with the broader U.S. economy, which may slow in 2008, he said.

Second Submarine

Northrop is projected to report earnings per share will rise 9.4 percent to $5.61 this year, from an estimate of $5.13 last year, according to 18 analysts surveyed by Bloomberg. Lockheed is forecast to report earnings per share will rise 5 percent to $7.27 this year, from an estimated $6.93 in 2007, according to 18 analysts surveyed by Bloomberg.

That will help lift Northrop's shares to $88.15 this year, according to 10 analysts surveyed by Bloomberg, while Lockheed will rise to $119.33, according to 15 analysts. That compares with a forecast gain of 3.8 percent in the Standard & Poor's 500 Index.

Northrop climbed $3.48, or 4.6 percent, to $79.89 at 4:02 p.m. in New York Stock Exchange composite trading. It was the biggest increase since July 28, 2003. Lockheed rose $2.23, or 2.1 percent, to $108.53.

Initial indications of the 2009 budget and spending plan for 2009-2013 suggest the Pentagon would add $2 billion in fiscal 2009 through 2011 to purchase two Virginia class submarines instead of one, according to England's Nov. 19 directive. The Virginia is the newest of the Navy's three classes of nuclear-powered attack submarines.

Higher Margins

Northrop splits production of the subs with Falls Church, Virginia-based General Dynamics Corp.. Each would get about $1 billion in extra revenue, said Myles Walton, a Boston-based analyst with CIBC World Markets. He rates Lockheed ``sector outperform'' and Northrop ``sector perform.''

``Advanced procurement for subs is one positive surprise that benefits Northrop,'' Walton said. ``They'll also get higher margins because they can flow more content through the shipyard.''

England also approved adding $693 million through 2013 for the new Zumwalt class DDG-1000 destroyer to be built by Northrop and General Dynamics.

For Lockheed, the Pentagon aims to buy 32 more C-130J aircraft than planned -- eight each year starting in 2010, according to the document. That may help lift Lockheed's profit from the aircraft to $303 million in 2010, from $280 million in 2009, according to Walton.

New Administration

The Pentagon will also put off a decision to start closing Lockheed's F-22 production line in fiscal 2009. Pentagon Comptroller Tina Jonas, in an unpublished Dec. 17 memo, told the Air Force to redirect $497 million slated for shutdown costs to repair Boeing F-15s. That gives supporters of the F-22 program another year to press their case for more planes.

Lockheed is under contract to deliver 183 F-22s, while the Air Force has said it wants 381. Without an additional order, Lockheed's F-22 sales will plunge to $400 million by 2012 from $2.8 billion last year, CIBC's Walton said. Profit would drop to $44 million from $252 million.

Eric Hugel, a New York-based analyst at Stephens Inc., said he prefers commercial aircraft suppliers to Lockheed and Northrop, which he rates ``equal weight.''

``These defense stocks are all going to get hit as we pull out of Iraq,'' Hugel said in an interview. This ``is probably going to be the last solid year. As you go out beyond 2009 we'll see deceleration.'' The possibility of a Democratic administration in 2009 creates additional risks, he said.

War Casualty

The strain of funding the war while modernizing ship and aircraft fleets is beginning to show. Congress has so far approved only $70 billion of the $190 billion Bush requested for the conflicts in Iraq and Afghanistan this year. That may leave other programs short of cash, Gates said at a Dec. 21 press conference.

One casualty in the 2008 budget was at the center of Rumsfeld's plan: Boeing's Future Combat Systems. Congress cut $206 million from the Army's $3.56 billion funding request.

The reduction suggests the system of satellite and computer-linked tanks and transports, the second-largest Pentagon weapons program after Lockheed's F-35 jet, is ``at risk,'' said Lexington Institute's Thompson.

The U.S. can't afford to ignore ships and aircraft, even as war spending crowds out some defense programs, Marine Corps Commandant General James Conway, a member of the Joint Chiefs of Staff, said at a press briefing Dec. 5.

``The aircraft age every year,'' Conway said. ``The fleet doesn't get any bigger. If we are going to remain a nation with superpower credentials, we've got to make sure that there's real capability there, that there's currency there, and that there's technological superiority. And it doesn't come cheaply.''

To contact the reporters on this story: Edmond Lococo in Boston at elococo@bloomberg.net; Tony Capaccio at acapaccio@bloomberg.net.

Last Updated: January 9, 2008 16:30 EST