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The Republican-dominated Congress will stem the decline in defense spending, boosting the fortunes of aerospace and defense companies. Other developments favorable to the industry include a $1.5 billion UK contract for Lockheed's C-130J cargo-carrier and renewed Air Force support for McDonnell-Douglas' C-17. The depressed airliner market will soon benefit from large Chinese and Saudi Arabian orders. Still, only stocks bearing Value Line rankings of 1 or 2 are recommended.

The prospects for aerospace/defense industry stocks are evaluated. Defense spending cuts could level off, if the Nov 1994 Congressional elections result in gains for conservatives. Lockheed and Martin Marietta plan to form a 'merger of equals,' but the deal is subject to antitrust review. No upturn is in sight for the commercial aircraft sector. Evaluations of individual stocks are included.

The aerospace and defense industry should continue to exhibit little if any growth in the near term. The airliner manufacturer sector could exhibit strong growth in 1995 or 1996 due to an increase in demand by air transportation operators. The defense sector of this industry should continue to exhibit declines in its performance, part of which is due to the net decline in military appropriations. Investors should be careful with their choices in this industry.

The aerospace and defense industries are suffering from a decline in aircraft demand. However, demand for commercial aircraft will eventually rise because 2,900 aircraft in the current fleet are destined for the scrap pile. The turn in demand could happen as soon as 1996 and become strong by the end of the century. Potential investors should choose company stocks with Timeliness ranks of 1 or 2 and realize that any investment in this industry is risky.

The aerospace and defense industries have entered a time of transition, as the US enters a peacetime economy with peacetime prospects for industrial manufacturing. With cuts in defense spending, it is unlikely that the companies can maintain high growth in 1994 and beyond. A number of companies have found buyers for their products overseas, or have switched their manufacturing lines to other products, but most investors should avoid these investments until the industry stabilizes.

Aerospace and defense firms showed strong financial performance during the third quarter of 1993, due to cost-cutting efforts and increased operating returns. Martin Marietta Corp, Lockheed Corp, Grumman Corp, Northrop Corp, and Loral Corp posted gains.

Loral Corp secured $46 million low-interest loan from the Export-Import Bank of Japan for its Space Systems subsidiary. Since 1990, the Export-Import Bank of Japan has been offering the export promotion program for US goods that would be exported to Japan. The program is a means of reducing Japan's huge trade surplus with the US. Loral Corp is only the second US company, after Florida-based appliance firm CLI Inc, to take advantage of the program.