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Parker Hannifin Corporation’s (PH - Analyst Report) aerospace segment, Parker Aerospace, has entered into a public-private partnership (PPP) agreement with the U.S. Navy’s Fleet Readiness Center-Southwest (FRC-SW) in San Diego.

Through this public-private partnership, the Parker Aerospace Customer Support Operations will be able to expand its offering of logistic services by facilitating the Navy to directly enter into workloads contract with Parker. Earlier, the contract was directed to the depot without any participation of Parker.

Initial signing of the agreement was done on September 27 and a formal signing ceremony will be held on October 6. With the formal signing, the Parker/FRCSW partnership was established, covering all Parker bills of material on F/A-18A through G aircraft platforms.

As per the agreement, Parker will be supporting the experienced team at FRCSW while supplying all of its parts necessary to perform the repairs with the mutual objective of ensuring service readiness of the worldwide fleet.

The Navy had wanted to enter directly into a contract with Parker on all the F/A-18, E-2, and V-22 Parker parts, with annual revenue generation capacity of $10 million. A resource to manage the business on-site at FRCSW will be hired by Parker. For Parker’s inventory and kitting of bills of material, an on-site office and area has been provided.

We believe Parker Hannifin is a high-quality company that is showing good execution. The company is witnessing a recovery in aerospace demand, which positively favors its future growth. MRO (Maintenance, Repair, and Overhaul) is expected to get a boost from continued deferral of capital investment in new machines. Parker Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.

However, the company’s domestic and foreign operations are subject to significant competitive pressures. To compete successfully, the company’s Industrial Segment and Climate & Industrial Controls Segment must excel in terms of product quality and innovation, customer service, manufacturing and distribution capability and price competitiveness. Meanwhile, the Aerospace Segment must excel on the basis of technological and engineering capability, quality, delivery and service, and price competitiveness. Major competitors of Parker are Eaton Corporation (ETN - Analyst Report) and Honeywell International Inc. (HON - Analyst Report)

Parker-Hannifin Corporation is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. In addition to motion and control products, the company is also a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems.

Currently, we are maintaining a Zacks #2 Rank (short-term Buy recommendation) on Parker-Hannifin.

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