NEW YORK (TheStreet) -- For defense contractors, war has been hell.Not traditional wars like the ones raging in the Middle East, which have spurred increased demand for high-tech weaponry and re-supplied arsenals. But rather the endless budget battle in Washington, which has made rubble of consolidation plans, paralyzed markets and left both executives and bankers eager for signs of an eventual armistice. Sequestration, for all of its hype, has so far been a mixed event for defense companies. On the surface, it appears politics has done little damage to the quarterly earnings of Pentagon titans and has only modestly affected the results of midtier players and government services companies. The long duration of typical federal contracts to some extent has shielded earnings, though the gridlock has delayed new awards and at times has slowed implementation of existing contracts.
LMT) CEO Marillyn A. Hewson said recently. The government is unlikely to encourage combinations among the few remaining prime contractors, she said, but second-tier and smaller suppliers should be able to move. "I certainly expect that because the economics will dictate that with the contraction of the budgets." Thompson said PwC is seeing an increase in interest among private equity and other financial investors as well. "They also have healthy balance sheets and are facing less corporate competitive pressure, but are still pursuing deals in a cautious way," he said. Barclays plc analyst Carter Copeland in a research note wrote that during first-quarter earnings calls large defense contractors focused on capital deployment, noting that "companies remain focused on 'controlling what they can control' by taking actions to appropriately size cost structures, focusing on execution and aligning their portfolios to meet the future needs of their customers." Executives at L-3 Communications Holdings Inc. ( LLL) and Raytheon Co. ( RTN) specifically mentioned they were keeping an eye out for M&A opportunities to offset defense spending cuts, while Lockheed Martin officials discussed the potential for joint ventures or acquisitions as a way to move into new areas.