That rumbling you heard this morning was the mad, frantic shuffling of papers and budget proposals inside the offices of defense contractors around the Washington Beltway, as they prepare to justify their appropriations amid a political shift in the nation's capital.

The Democrats, led by U.S. President-elect Barack Obama, are taking over the town. And while the security needs of the post-September 11 era and two wars mean major U.S. defense spending cuts are unlikely, changes in priorities and the demands of the financial crisis could create "a dramatically different defense spending landscape" for defense contractors like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC)," says economist Peter Dawson.

More support for troops on ground?

"What we may see from President-elect Obama is a shift toward increased U.S. Army troop strength and the basic armor and weapon systems that support them, to take stress off our forces in Iraq and Afghanistan, and to improve results in the wars, and less emphasis on costly, high-tech weapon systems," Dawson said. "If that's the case, an Obama Administration could seek to delay production of the Navy's DDG-1000 Zumwalt class destroyer, additional purchases of the new F-22 fighter jets, and other programs."

The DDG-1000 destroyer is jointly built by Northrop Grumman and General Dynamics (NYSE: GD). The F-22 is built by Lockheed Martin. Northrop's shares rose 44 cents to $48.50, Lockheed's gained 62 cents to $86.53, and General Dynamics fell $1.30 to $62.47 in mid-day Wednesday trading.

In business, as in international relations, there are battles you fight and battles you don't fight.

It looks like Boeing's decision earlier this year to protest the U.S. Department of Defense's award of an aerial refueling tanker contract constituted a savvy corporate tactic. Government auditors first ordered a rerun of the competition, and then today U.S. Secretary of Defense Robert Gates delayed the $35 billion award contest, saying there isn't enough time to complete the contest fairly, by the end of the Bush Administration, the Pentagon announced.

"Over the past seven years the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defense," Secretary Gates said in a statement. "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."

Gates added that the 'cooling off' period will allow the next administration to objectively review the military requirements and craft a new acquisition strategy for the refueling tanker.

BusinessWeek reports that Defense Secretary Robert Gates is expected to make an announcement today about whether the Air Force will reopen the bidding for the $35 billion tanker program. Boeing Inc. (NYSE: BA) thought it had a lock on it but earlier in the year, the Air Force awarded the contract to EADS, parent of Airbus, and Northrop Grumman (NYSE: NOC). Boeing protested and last month, the General Accounting Office (GAO) reported that the award process was flawed.

That should come as no surprise. After all, Senator John McCain (R-AZ) was pushing for the European company to win the competition -- possibly since his then national finance chairman lobbied for that company. One of the sources I spoke with said that people suspect McCain arranged for a change in Tanker specifications to tilt the playing field in favor of EADS. This source also said that the Air Force neglected to notify Boeing of the change. Evidently, the GAO agreed that something was fishy here. It would be at least the fifth time that McCain had been influenced by lobbyists.

Now attention turns to Gates and Congress which hosts a battle between Senators from Washington, where Boeing has operations, and Alabama, where Northrop employs workers. BusinessWeek quotes Senator Patty Murray (D-Wash.), who introduced a Senate resolution on July 8, calling on the Pentagon to rebid the flawed tanker contract, as saying: "The GAO's decision was clear, and today we are reiterating that message so that the Pentagon knows there is no wiggle room. It's time to go back and hold a truly transparent competition that does our war fighters and taxpayers justice."

Boeing may abandon plans to sell its aerial refueling tanker internationally if it loses its protest of a U.S. Air Force decision to buy $40 billion worth of tankers from a competitor, The Wall Street Journal reported Wednesday [subscription].

Boeing's Mark McGraw, the executive in charge of the program, told The Journal that Boeing had counted on the Pentagon to provide enough volume to make an international tanker business viable.

In February, Northrop Grumman (NYSE: NOC) and partner European Aeronautic, Defence & Space (EADS), parent of Airbus, beat out Boeing, the Air Force's only supplier of the aircraft for half a century; the Air Force recently announced that it continues to support that decision. Boeing protested the award to the Government Accountability Office, which must make its recommendation to the Pentagon by Thursday.

Boeing's (NYSE: BA) shares were virtually unchanged on the news in Wednesday mid-day trading, gaining eight cents to $74.43. Northrop Grumman rose $1.03 to $72.09 and EADS fell 46 euro cents to 13.57 euros on the Paris Exchange.

Bell Boeing has received a $10.4 billion U.S. Department of Defense contract for the V-22 Osprey that guarantees production of at least 167 more of the aircraft through 2012, Bell Boeing announced Monday.

Bell Boeing is a strategic alliance between Bell Helicopter, a unit of Textron (NYSE: TXT) company, and Boeing (NYSE: BA).

The five-year contract includes 26 CV-22 aircraft for the U.S. Air Force Special Operations Command and 141 MV-22 aircraft for the U.S. Marine Corps. The contract includes an option for additional aircraft.

Both Boeing and Textron moved higher on the news. Boeing shares gained 83 cents to $74.30 and Textron rose 47 cents to $55.07 in early Monday trading.

The V-22 is a tiltrotor aircraft with proprotors and engines installed in nacelles at the tips of both wings.

Analysis: The contract is good news on a number of fronts, the most obvious of which is additional work for Boeing and Textron. In the last six months Boeing shares have declined roughly $30 to about $74 on rollout delays for its next-generation 787 Dreamliner commercial aircraft, and the U.S. economic slowdown. The news is also a mild shot in the arm for the U.S. economy, which given the large number of industrial jobs lost to cheaper overseas manufacturing zones, can use all of the domestic industrial jobs it can get.

Northrop Grumman (NASDAQ: NOC) is recently up 72 cents to $80.16.

The Pentagon is expected to announce a deal valued up to $40 billion to replace 179 planes in its fleet of aerial refueling tankers on February 28 or 29. Cowen says, "Boeing's (NYSE: BA) 767 tanker is apt to be politically favored over the NOC/EADS A330." NOC March option implied volatility of 21 is below its 26-week average of 23 according to Track Data, suggesting decreasing price risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

American President George Bush announced his new budget spending plan today, and the package came out to a total of $3.1 trillion.

Today's federal budget proposal marks the first time in America's history that a budget plan has been in excess of $3 trillion. Bush claims that his budget is "good" and "solid" and that the passing of this budget will help keep the troubled American economy growing.

All in all, this budget looks to lift government spending by 6% during the fiscal year 2009, and it will probably come to no one's surprise that defense gets a nice little boost from today's budget. Bush is looking to allocate 8.2% of his spending on security, and the budget is looking to stake a $70 billion "placeholder" for war costs during 2009. The Pentagon should be pleased with its figures, as Bush is looking to allocate $515.4 billion its way... the highest allocation since WWII (and represents a 7.5% jump).

It' s not everyday that investors are presented with a growth opportunity, supplemented by more-than-modest downside protection, but that's the case with General Dynamics.

General Dynamics (NYSE: GD) is a diversified manufacturer of corporate jets and heavy vehicles, and is the second largest military shipbuilder -- specializing in nuclear-class submarines.

Along with consistent earnings and dividend growth, analysts like GD's platform diversity, with civilian work (Gulfstream corporate jets) complementing defense contract work (Trident submarines, armored vehicles). Analysts expect GD's revenue to increase about 10-13% in 2007, and 9-11% in 2008.

Moreover, GD's shares offer a measure of safety in that the submarine portion of the U.S. defense system is the force projection most likely to continue to be funded by Congress. Along with stealth fighters/bombers, submarines are the least-detectable form of military operations.

Long term, analysts generally see growth in GD's sales of business jets, land vehicles and munitions. Cost containment has been adequate. The Reuters F2007/F2008 EPS consensus estimates for GD are $5.07/$5.71.

The qualifiers? A reduction in U.S. Department of Defense appropriations would hurt GD's results, as would a failure to deliver existing work on time.

The First Call mean rating for GD is: Buy. [19 firms.] Mean 2008 target: $99.00. [high: $106, low: $94.]

Stock Analysis: General Dynamics is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from GD's shares. Sell / Stop Loss if you were to purchase shares in this company: $62.

Remember four, five years ago when everything that could go wrong did go wrong for Boeing (NYSE: BA)? The company not only lost market share to Airbus SAS but ousted its CEO, Phil Condit, and his successor, Harry Stonecipher, for among other things having affairs with subordinates. Former CFO Michael Sears was sent to prison for his role in one of many Pentagon scandals involving the company.

Under Chief Executive James McNerney, who joined the plane maker from 3M Co. (NYSE: MMM) in 2005, Boeing has managed to put its problems behind it. The company reported net income of $1.11 billion, or $1.44 a share on revenue of $16.5 billion, beating Wall Street expectations. Boeing also raised earnings, revenue and cash flow guidance for the year. It trimmed back its forecasts for 2008, but that's to be expected given the delays in the 787 Dreamliner and the slowdown in the defense business.

Shares of the Chicago-based company are up about 6% this year, underperforming peers Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD) and Raytheon (NYSE: RTN) mainly because of worries about the Dreamliner. This reaction is overblown. First of all, the fact that new, sophisticated aircraft has been delayed is hardly surprising. If the delays continue however, that's more serious. For now, Boeing's customers haven't lost faith, placing 710 firm orders.

If the Dreamliner stays on track and the company gets its fair share of defense spending, the shares may head higher.

Visit AOL Money & Finance for more earnings coverage

Our troops in Iraq and Afghanistan risk their lives everyday for the United States. The least the Department of Defense can give them is access to News Corp.'s (NYSE: NWS) MySpace and Google Inc.'s (NASDAQ: GOOG) YouTube and similar Web sites.

According to a Department memo obtained by the Associated Press, the military argued:"This recreational traffic impacts our official DoD network and bandwidth ability, while posing a significant operational security challenge."

The ban, which takes effect Monday, applies to all troops serving overseas.

It's ridiculous.

First of all, the military networks are gigantic enough to be able to handle the bandwidth being used by members of the Armed forces chatting with their friends on MySpace or watching YouTube video clips. I bet that a team of smart people could figure out a way to prevent classified information from showing up on these sites.

Maybe people in the War Zone could give out their screen names to their commanding officers. If the Pentagon can figure out how to shoot down incoming nuclear missiles, it certainly can figure out how to solve this problem.

Moreover, denying soldiers a cheap, easy and fairly safe form of entertainment seems petty. Then again, the men and women serving overseas put up with quite a bit.

Many probably are too busy to spend much time surfing the Internet.

Sun Microsystems, Inc. (NASDAQ:SUNW) had a mixed bag of news recently. According to research firms Gartner and IDC, its server sales were up sharply in the third quarter cementing it place as the No. 4 provider [subscription required] behind International Business Machines (NYSE:IBM), Dell, Inc. (NASDAQ:DELL) and Hewlett-Packard Co. (NYSE:HPQ).

However, in Sun's bid to be part of the Pentagon's new initiative to build out its supercomputer capacity, the company rolled snake eyes. The Defense Advanced Research Projects Agency awarded $500 million worth of contracts to IBM and Cray, Inc. (NASDAQ:CRAY). The plan is to build a supercomuter that is several times faster than the most advanced products available today.

Cray is a much smaller company than Sun. Its market capitalization is only $250 million. Cray's revenues last year were only $200 million.

For Sun, that has to hurt.

Douglas McIntyre is a partner at 24/7 Wall St.

Time Warner closed at $16.42, down .01 at end of regular trading, but up .08 in after hours trading. The stock ended the week exactly where it began: $16.50.

This flat result came despite the fact that Time Warner announced several important strategies for the immediate future of AOL Video as a premier video search and view destination. Viewers will be able to access a virtually limitless array of amateur videos and video clips, as well as hundreds of hours of TV programming on demand. Additionally, AOL will offer downloadable movies on demand from 20th Century Fox, Sony, NBC Universal, and Time Warner's own Warner Brothers. Time Warner beat both Apple Computer Inc. and Amazon.com to the punch for video accessibility. Yet investors continue to flame Time Warne's efforts while Apple's lithium-ion battery powered notebooks are the fire hazard.

Time Warner unit CNN announced that on the five-year anniversary of the terrorist attacks on the World Trade Center and the Pentagon, it will make available free of charge replays of its coverage of events on September 11, 2001. CNN Pipeline will provide live coverage of memorial services at Ground Zero in NYC and DC. Viewers can also access the replay feed of 9/11/2001 from 8:30 A.M. until midnight. For those still unable to watch events of 9/11/2001, CNN will also have a number of interactive but less graphic elements on its site.