In the wake of last week’s sudden attacks on Fort Hood and this week’s Veterans Day celebrations, many on Capitol Hill are beginning to discuss another subject other than health care: Defense Spending. If lawmakers feel more money is necessary to keep the country safe, any increase in the defense budget could offer tremendous opportunities for shareholders of defense companies.

At the end of October, President Barack Obama approved the Defense Department’s $680 billion budget for fiscal 2010, which included funding to increase military personnel and support the wars in Iraq and Afghanistan. The difference in this bill, as compared to the previous administration’s, is the transition from big-ticket items for conventional warfare to funding for more troops and equipment for fighting smaller wars.

The new bill also allows for the Pentagon to increase its intelligence services that had been most recently contracted out to private businesses. Of the $680 billion, $550 billion is allocated to the Defense Department and the national security programs of the Department of Energy; $130 billion is earmarked to support the ongoing conflicts in Iraq and Afghanistan.

Defense companies are beginning to shift their models to the mindset of the new Administration. For example, just announced this morning, KKR & Co. and General Atlantic LLC agreed to pay $1.65 billion for a Northrop Grumman Corp. (NOC:NYSE) government-consulting unit. The company put the division up for sale to address concerns among lawmakers that some defense contractors were not complying with new conflicts-of-interest regulations.

“Northrop seems to be moving out aggressively to reshape its portfolio to meet the characteristics of the Obama era,” said Loren Thompson, an analyst at Lexington Institute in Arlington, Va., to Bloomberg News. Northrop concluded “that they didn’t want to endanger their military satellite business with business that appears to be incompatible” with the new rules.

The Northrop deal is seen as just the beginning for shareholders as the administration shifts the defense spending strategy that has been so common for decades in Washington. As MarketWatch reports:

The 2010 bill authorizes the purchase of 30 F-35 Joint Strike fighters, built by Lockheed Martin Corp. (NYSE: LMT). It also includes funding to develop an alternate engine by General Electric Co. (NYSE: GE) and RollsRoyce Group (UK: RR), which created a dustup between the White House and Congress.

Obama had threatened to veto the bill only if funding for an additional engine interfered with procuring the F-35, so Congress took the cash from elsewhere. Congress also allotted $1.1 billion for nine F-18 jets and $1.4 billion for three littoral combat ships, one less than the Pentagon request.

Congress also rolled back the Pentagon’s request for more unmanned aircraft, lowering the procurement number by 12 to 35 Sky Warriors, built by General Atomics.

Conversations about additional funding will certainly continue as the Foot Hood massacre maintains its headline status. The question forthcoming will be how additional funds will be allocated: To equipment or domestic security?

“After eight years of war, we must sustain our efforts to restore military readiness in order to meet current military challenges and prepare for the future,” said House Armed Services Committee Chairman Ike Skelton (D-Mo.), to MarketWatch.

Other Related Topics: Counter Intelligence Services , Defense Spending , Government Issues , Military , National Security , Tipping Point Alert , Todd M. Schoenberger

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