ITA fell with Boeing, SHLD rose with Palantir last week

Kelly Ortberg told the Morgan Stanley Laguna Conference on Wednesday, September 16, that it is taking "longer than expected" to stabilize Boeing's 737 Max line at 47 jets a month. "The area where we're constrained right now is our wings production," he said. Shares fell 3.7% that session and finished the week down 5.8%, at $198.20. iShares' U.S. aerospace and defense fund AITA and State Street's equal-weight aerospace book AXAR fell with it on the week. Global X's defense-tech fund CSHLD rose.

Washington cleared a possible foreign military sale of 48 F-35s to Saudi Arabia, lifted a tanker-support ceiling, and awarded an $871 million F-35 sustainment modification. None of that moved a commercial assembly line. Holders of AITA got Boeing's factory. Holders of CSHLD got Palantir and BAE Systems.

A $24.3 billion F-35 notice for Saudi Arabia

On Thursday the State Department approved a possible sale to Saudi Arabia of 48 F-35 Lightning II aircraft and 49 Pratt & Whitney F135-PW-100 engines, 48 installed and one spare, at an estimated total cost of $24.3 billion. Lockheed Martin Aeronautics in Fort Worth and Pratt & Whitney in East Hartford would be the principal contractors. Congress was notified the same day. Rep. Raja Krishnamoorthi, a Democratic member of the House Intelligence Committee, opposed the sale, citing the risk that China could obtain sensitive technology. Lockheed has not signed a contract, and the jets have not been ordered.

Lockheed Martin still had a busier F-35 week than the funds that hold it. On Friday the Pentagon awarded an $871 million modification for F-35 site-activation and hardware non-recurring sustainment, covering initial sustainment supplies and services. The same day, Lockheed rolled out Germany's first F-35A in Fort Worth. The stock rose 1.8% on the week.

Boeing's defense paper was thinner than it looked. The Air Force awarded a $13.4 billion ceiling modification on the KC-46 Pegasus combat-capability contract, lifting the total from $5.7 billion to $19.1 billion and adding foreign-military-sales scope for Japan, Israel and future partners. Work is expected through April 28, 2035. No funds were obligated. A ceiling is permission to order, not an order.

The Congressional Budget Office said Tuesday that restocking interceptors after Iran combat would probably take at least five years, even if production increased. That clock sits next to a 48-jet export case that is still before Congress. Both are demand that the plants have not yet turned into hardware.

Palantir funds rose. Boeing funds did not

From Friday, September 11 through Friday, September 18, the S&P 500 fund ASPY was essentially unchanged, down 0.1%. U.S. aerospace-and-defense funds that load up on Boeing, GE Aerospace and the equal-weight industry book did worse. Funds that own Palantir, BAE and European electronics did better.

The U.S. prime and equal-weight books fell. The Palantir-and-Europe book rose. AITA, $12.5 billion and the category's most-traded book, has 48% of assets in GE Aerospace, RTX and Boeing.

Those three names accounted for 1.5 percentage points of the fund's 2.4% price decline. GE fell 2.9%, Boeing 5.8%, RTX 1.9%. Lockheed and Northrop Grumman, 9.4% of the fund combined, were not enough.

AXAR, $6.1 billion, fell more even though Boeing is only about 3% of it. The S&P Aerospace & Defense Select Industry Index spreads weight across 47 names. VSE Corp., AAR Corp., Astronics and Axon Enterprise, each down 6.6% to 11.2%, did the damage. Axon announced a $1.0 billion offering of 0% convertible notes due 2031 on Tuesday and dropped 9.8% that session. AeroVironment, up 9.0% after a BlueHalo orbital-warfare award of nearly $100 million, was the largest positive contributor and still left the fund down 2.5%.

CSHLD, $7.1 billion, rose 1.5%. Palantir, 10.8% of the fund and up 6.2%, contributed 0.67 percentage points. BAE Systems and Thales added more. Palantir at that weight produced a different week than a book that is 48% GE, RTX and Boeing.

The Boeing session landed on a slide that was already a month old. AXAR is down 15.6% over one month and sits 19.5% below its 52-week high of $297.79. AITA is down 13.0% over one month.

Europe split on the same seam

Select's European aerospace and defense fund CEUAD fell 0.5%. Rolls-Royce, Safran and Airbus are 59% of the fund. Airbus's American depositary shares dropped 3.7%, Safran's 2.8%. BAE Systems, up 5.5%, almost offset Airbus on its own and still could not lift a book that is built as a commercial-and-military hybrid.

WisdomTree's Europe defense fund CWDEF rose 1.6%. It screens for European companies that draw at least 10% of revenue from defense and then overweight the names with the highest defense share. BAE, Thales and Rheinmetall are the top three. Airbus and Safran are each about 5%. Same continent, different factory mix.

Airbus reported 57 commercial deliveries in August to 31 customers and 67 orders. At the same Morgan Stanley conference, RTX chief executive Chris Calio put the company's backlog at $289 billion as of June, a figure he said excludes a recently awarded seven-year Tomahawk contract and munitions framework agreements. RTX still fell 1.9%.

If the Saudi case becomes a contract, Lockheed still has to build 48 jets. Boeing's tanker ceiling runs to 2035 and obligated nothing last week. The CBO's interceptor clock runs at least five years even if output rises. Boeing fell 5.8% on the week Ortberg said the wing shop is not yet feeding 47 jets a month. RTX fell 1.9% with a $289 billion backlog.