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Lockheed Martin Wins $743M Navy Contract for F-35 Aircraft


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Defense major Lockheed Martin Corp.’s (LMT - Analyst Report) Aeronautics business division recently clinched a modification contract from the U.S. Navy for the F-35 Lightening II Joint Strike Fighter aircraft. The original advance acquisition contract involved low-rate initial production of Lot 9 F-35 Lightening II jets.

Details of the Deal

Valued at $743.2 million, this deal promises to offer additional funding and establish not-to-exceed (NTE) prices for diminishing manufacturing and material shortages redesign and development, estimated post production concurrency changes and country unique requirements.  Moreover, this modification will establish NTE prices for one F-35A aircraft and one F-35B aircraft for a non-U.S. Department of Defense (DoD) participant in the F-35 program. 

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work will be carried out in Fort Worth, TX; El Segundo, CA; Warton, U.K.; Orlando, FL; and many other regions across the globe.

The modification will utilize fiscal 2015 aircraft procurement (Air Force, Marine Corps, and Navy) and non-U.S. DoD participant and foreign military sales funds. Work related to this agreement will be over by Dec 2019.


F-35 Attributes

Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine 5th Generation fighter aircraft, which comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. Three variants of F-35 are set to replace 5 fighter jets for the U.S. Air Force, Navy and Marine Corps, as well as a variety of fighter jets for at least ten other countries.

With Lockheed being the primary partner, the F-35 program has been supported by an international team of leading aerospace majors. While Northrop Grumman Corp. (NOC - Analyst Report) contributed its expertise in carrier aircraft and low-observable stealth technology to this program, BAE Systems plc’s (BAESY - Snapshot Report) short takeoff and vertical landing experience, and air systems sustainment supported the jet’s combat capabilities. Pratt & Whitney, a unit of United Technologies Corporation (UTX - Analyst Report) , provided F-35s with the F135 propulsion system, the world's most powerful fighter engine.

Our View

Built with the combined expertise of some of the best corporations in the aerospace-defense space, F-35 is the world's largest defense program. Excluding the temporary stand-down of 15 jets in the U.S. and Norwegian fleet for addressing insulation issues in the fuel tank’s avionics cooling lines, initiated late September, the overall F-35 program has been making progress on most fronts of late..

As of Jun 2016, Lockheed Martin has rolled out 174 F-35s which have together accounted for 68,000 flight hours, marking this aircraft’s achievement of operational benchmarks. Going forward, Lockheed Martin aims at increase its deliveries of F-35 to 53 this year and has already supplied approximately 180 since the inception of the program. Management has also adopted a cost-saving initiative that is expected to reduce sustainment costs for F-35 by 10% over the next couple of years. This will result in cost savings of $1 billion over a five-year period. We believe that the latest modification contract will help in the company meet these targets.

Zacks Rank

Currently, Lockheed Martin carries a Zacks Rank #4 (Sell). The company’s earnings estimates have dropped 6% for 2016 and 2.4% for 2017, in last 60 days.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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