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General Dynamics Corporation’s (GD - Analyst Report) subsidiary General Dynamics Land Systems has entered into a $40 million agreement with the U.S. Army TACOM Life Cycle Management Command. The deal comes under the U.S. Foreign Military Sales contract to offer defense support to the Kingdom of Saudi Arabia.

Per the agreement, General Dynamics will provide procurement and production services to the Saudi M1A2 (M1A2S) Abrams tanks. The contract is a modification to an existing contract for the improvement of the fleet of tanks in the Kingdom of Saudi Arabia. The previous deal, signed in Jan 2013, was for the production and delivery of 69 Saudi M1A2 Abrams tanks.

General Dynamics will roll out the services from its facilities at the Joint Systems Manufacturing Center in Lima, Ohio. The deliveries are expected to be completed by Jul 31, 2014.

M1A2 SEP V2 is the most advanced digital tank with improved color displays, day and night thermal sights, commander remote operated weapon station (CROWS II), a Thermal Management System (TMS) and a tank-infantry phone. The M1A2S conversion increases the efficiency and capability of the tank.

Over the years, General Dynamics has a long-standing strategic alliance with the U.S. defense establishments and tries to meet its commitments in terms of maintaining product and service standards along with delivery timing. The company has been upgrading the kingdom's fleet of M1A1 and M1A2 tanks for a long time.

General Dynamics’ Abrams tanks provide the troops with a proven and supreme decisive edge. In addition, survivability, mobility, adaptability and maintainability are important features of the tank. With these traits, these tanks are formidable and will dominate the battlefield. Apart from the Saudi defense authority, General Dynamics supplies the Abrams tanks to its international allies including Egypt, Kuwait and Australia.

In Jan 2012, General Dynamics had received the contract for upgrading M1A1 tanks to the M1A2 Systems Enhancement Package (SEP) V2 configuration. In Feb 2008, the company had originally received the order from the U.S. Army TACOM Lifecycle Management Command to upgrade 435 M1A1 tanks.

We believe the effects of Arab Spring as well as the prevailing unrest in the Middle East are propelling the Saudi defense establishment to enhance and upgrade its arsenal capability. Last month, the Royal Saudi Air Force entered into an agreement, worth $253 million, with Lockheed Martin Corporation (LMT - Analyst Report) to seek assistance for its F-15SA pilot and maintenance training systems.

General Dynamics Corporation currently has a Zacks Rank #3 (Hold). Other stocks from the sector that are presently performing better include Ducommun Inc. (DCO - Snapshot Report) with a Zacks Rank #1 (Strong Buy), and Alliant Techsystems Inc. (ATK - Analyst Report) with a Zacks Rank #2 (Buy).

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