Northrop Win Grounds Aerospace ETFs

Northrop Grumman (NOC - commentary - Trade Now) scored a major win by beating out Boeing (BA - commentary - Trade Now) for a nine-year, $3.8 billion contract to service and maintain the U.S. Air Force's fleet of 59 KC-10 refueling tankers.

This result has already translated into negative movements in daily performance of both the PowerShares Aerospace & Defense ETF (PPA - commentary - Trade Now) and the iShares Dow Jones US Aerospace & Defense (ITA - commentary - Trade Now). Although the two funds hold considerable percentages of Boeing and Northrop, both ETFs have greater exposure to Boeing. PPA holds 6.77% in Boeing vs. 4.52% in Northop, while in ITA it is 7.49% vs. 5.49%, respectively.

While on a daily basis, PPA and ITA are trading lower, in large part due to the contract decision, they are both modestly up year-to-date for the period ending Oct 1. ITA is up 14.5%, and PPA is up 13.5%.

The decision to award Northrop the contract was especially disappointing for Boeing considering it had been in charge of servicing the jets for more than a decade.

With this recent accomplishment under its belt, Northrop is already involved in its next bidding war with Boeing over an even larger contract. This contract, worth an estimated $50 billion, is for the right to supply the Air Force with 179 new tankers to replace the aging fleet. Although this most recent win will likely increase its chances, Northrop will be further aided by its partner, Airbus.

Investors with exposure to the aerospace industry may want to keep an eye on how this develops, as it's likely to help shares of the winning company take off.

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At the time of publication, Dion had no positions in stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.