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Lockheed Martin Wins F-35 Jet Service Deal Worth $1.1B
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Pentagon’s prime contractor Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics business segment secured a contract for providing recurring logistics support and sustainment services for F-35 Lightning II aircraft from the U.S. Navy. Work related to this deal is expected to be over by Dec 2017.
Details of the Deal
Valued at $1.1 billion, this contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work for this agreement will be executed in Fort Worth, TX; Orlando, FL; and the rest at a few other locations across the U.S.
Per the terms of the deal, Lockheed Martin will offer the services to the U.S. Air Force, Navy, Marine Corps, non-Department of Defense (DoD) participants as well as foreign military sales (FMS) customers. The services under the contract include ground maintenance, action request resolution, depot activation, automatic logistics information system, operations and maintenance, reliability, maintainability and health management implementation and support, supply chain management. The company will also provide and support pilot training.
A Brief Note on F-35
Lockheed Martin’s F-35 Lightning II is a 5th Generation, single-seat, single-engine fighter jet. It offers a combination of advanced stealth as well as fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment.
With Lockheed Martin being the primary partner, the F-35 program has been supported by an international team of leading aerospace majors like Northrop Grumman Corp. (NOC - Free Report) , BAE Systems plc’s (BAESY - Free Report) and Pratt & Whitney – an unit of United Technologies .
Our View
It is interesting to note that in spite of gaining considerable traction across the globe for providing superior air security and stability; the F-35 program has been grappling with some technical challenges over the past few years. It is imperative to mention in this context that although this jet’s engine has led to a few delays, recently it was announced that engine removal for maintenance – a key measure of engine reliability – is over 90% and hence is not required until 2020 (read more: Will Trump's Victory Spell Doom for Lockheed Martin's F-35?)
In terms of price, F-35 was recently criticized by President Trump who has been repeatedly tagging this project as “overtly expensive”. In fact, in Jan 2017, Trump claimed that his intervention has forced the company to slash the cost of lot 10’s F-35 jets by $600 million. Although Lockheed Martin’s management never confirmed to this proclamation, in Dec 2016 it had announced plans to cut down cost by $550−$630 million or 6–7%.
Finally, last month, the company won a DoD contract worth $8.5 billion for the production of 90 F-35 fighters of the 10th batch at a lowest price to date, when compared to this program’s prior contract value. This indicates that Lockheed Martin has eventually acted on the cost-cut plans for F-35 as proposed by the President (read more: Lockheed Gets DoD Deal for F-35 at Historically Low Prices).
One may expect that such cost reductions might hurt the company’s growth trajectory. However, considering the factors that are expected to favor Lockheed Martin, it is unlikely that the world’s largest defense contractor will suffer any setback, at least in the long term. Notably, the company expects to increase its delivery of F-35 jets by over 40% year over year in 2017, plans to cut sustainment costs for F-35 by $1 billion over next five years as well as the U.S. government plans to spend approximately $400 billion in the upcoming decades to develop and purchase 2,443 F-35 jets. These moves are likely to benefit the company over the long haul.
Lockheed Martin’s historical stock price analysis also hints at its ongoing growth.. Notably, over the last couple of years, its share price rose about 34.2%, above the Zacks categorized Aerospace/Defense industry’s gain of 20.1%. A steady flow of contracts from the Pentagon and other international customers for products like F-35, F-16, Aegis Combat and many more; have likely triggered the company’s outperformance. Hence, going forward as well, such strength in performance can be expected from the company.
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Lockheed Martin Wins F-35 Jet Service Deal Worth $1.1B
Pentagon’s prime contractor Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics business segment secured a contract for providing recurring logistics support and sustainment services for F-35 Lightning II aircraft from the U.S. Navy. Work related to this deal is expected to be over by Dec 2017.
Details of the Deal
Valued at $1.1 billion, this contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work for this agreement will be executed in Fort Worth, TX; Orlando, FL; and the rest at a few other locations across the U.S.
Per the terms of the deal, Lockheed Martin will offer the services to the U.S. Air Force, Navy, Marine Corps, non-Department of Defense (DoD) participants as well as foreign military sales (FMS) customers. The services under the contract include ground maintenance, action request resolution, depot activation, automatic logistics information system, operations and maintenance, reliability, maintainability and health management implementation and support, supply chain management. The company will also provide and support pilot training.
A Brief Note on F-35
Lockheed Martin’s F-35 Lightning II is a 5th Generation, single-seat, single-engine fighter jet. It offers a combination of advanced stealth as well as fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment.
With Lockheed Martin being the primary partner, the F-35 program has been supported by an international team of leading aerospace majors like Northrop Grumman Corp. (NOC - Free Report) , BAE Systems plc’s (BAESY - Free Report) and Pratt & Whitney – an unit of United Technologies .
Our View
It is interesting to note that in spite of gaining considerable traction across the globe for providing superior air security and stability; the F-35 program has been grappling with some technical challenges over the past few years. It is imperative to mention in this context that although this jet’s engine has led to a few delays, recently it was announced that engine removal for maintenance – a key measure of engine reliability – is over 90% and hence is not required until 2020 (read more: Will Trump's Victory Spell Doom for Lockheed Martin's F-35?)
In terms of price, F-35 was recently criticized by President Trump who has been repeatedly tagging this project as “overtly expensive”. In fact, in Jan 2017, Trump claimed that his intervention has forced the company to slash the cost of lot 10’s F-35 jets by $600 million. Although Lockheed Martin’s management never confirmed to this proclamation, in Dec 2016 it had announced plans to cut down cost by $550−$630 million or 6–7%.
Finally, last month, the company won a DoD contract worth $8.5 billion for the production of 90 F-35 fighters of the 10th batch at a lowest price to date, when compared to this program’s prior contract value. This indicates that Lockheed Martin has eventually acted on the cost-cut plans for F-35 as proposed by the President (read more: Lockheed Gets DoD Deal for F-35 at Historically Low Prices).
One may expect that such cost reductions might hurt the company’s growth trajectory. However, considering the factors that are expected to favor Lockheed Martin, it is unlikely that the world’s largest defense contractor will suffer any setback, at least in the long term. Notably, the company expects to increase its delivery of F-35 jets by over 40% year over year in 2017, plans to cut sustainment costs for F-35 by $1 billion over next five years as well as the U.S. government plans to spend approximately $400 billion in the upcoming decades to develop and purchase 2,443 F-35 jets. These moves are likely to benefit the company over the long haul.
Lockheed Martin’s historical stock price analysis also hints at its ongoing growth.. Notably, over the last couple of years, its share price rose about 34.2%, above the Zacks categorized Aerospace/Defense industry’s gain of 20.1%. A steady flow of contracts from the Pentagon and other international customers for products like F-35, F-16, Aegis Combat and many more; have likely triggered the company’s outperformance. Hence, going forward as well, such strength in performance can be expected from the company.
Zacks Rank
Lockheed Martin currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>