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Trump Admin to Pursue Lockheed's F-16 Jet Sale to Bahrain
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In a bid to further boost America’s aerospace and defense space, President Donald Trump’s administration plans to pursue the $5 billion sale of 19 Lockheed Martin Corp. (LMT - Free Report) F-16 jets to Bahrain. The deal had been stalled owing to human right concerns last year. As told to Congress, the U.S. State Department will reinstate the deal, putting aside human right conditions imposed by the Obama government.
Notably, F-16 jets – known as the fighting falcon – make one of the top-most combat proven fighter aircraft. Its latest version – F-16V – is a 4th generation multirole fighter, which comes with enhancements like an Active Electronically Scanned Array (AESA) radar, a modern commercial off-the-shelf (COTS)-based avionics subsystem, a large-format, high-resolution display and a high volume and speed data bus.
What Had Happened?
In Sep 2016, the State Department had notified Congress of the sale, which included 19 aircraft, 23 engines, radars and other avionics, air-to-air and air-to-ground ordnance and related equipment. However, Obama’s administration disapproved the deal citing Bahrain government’s failure to demonstrate noticeable progress on human right issues.
Back then, the U.S. government’s primary concern in relation to this deal involved Bahrain administration’s lack of efficiency in establishing human rights equality after its Sunni-dominated government suppressed non-violent opposition and dissolved the main group of the country’s Shiite majority.
How Lockheed Martin Reacted
As Bahrain is one of its valued customers, Lockheed Martin’s administration strongly urged the Obama government to reconsider the decision. In fact, ever since the contract got delayed, the company has been pushing for an approval, even after facing serious criticism from human right activists who feared this sale, if approved, might trigger further repression and instability in the Middle East.
Meanwhile, after the go-ahead from the Trump administration, the company refrained from making any comment. Nevertheless, Bruce Tanner, Lockheed Martin’s chief financial officer, last week revealed that the company has adopted ‘cautious optimism’ with respect to the potential approval of the sale, probably by this year.
Will the Deal See the Light of Day?
Though the Bahrain deal has crossed the primary hurdle, the entire process involves a lot many stages.
For final approval, this deal needs to undergo extensive congressional review for which the State Department has sent a notice to Congress and the review time is 40 days. Next, a formal notice is needed to be served to Congress as required by the Arms Export Control Act. Only after this, the licenses for the sale will get approved.
Our View
Being the primary defense contractor for Pentagon, deriving 27% of its revenues (as of 2016) from international customers, the Bahrain deal is sure to benefit Lockheed Martin substantially. In fact, due to shortage of F-16 deals from the U.S. government, this product line has already been suffering. Owing to the lack of orders, the company had also been considering the discontinuation of F-16 production by this August or September. On a brighter note, the approval of this deal will help Lockheed Martin retain its assembly line in Fort Worth, TX; for another year to 18 months (as told by Tanner).
We must note that Lockheed Martin does not solely depend on F-16 for revenue generation from military aircraft. It also manufactures other high-end, advanced military jets. A quick sneak peek into the company’s last released quarterly report also throws light on this. Evidently, sales from its Aeronautics business division, which manufactures aircraft, improved 23% in the fourth quarter of 2016, representing 39.3% of total sales. We expect to witness a similarly solid performance in going ahead as well.
Meanwhile, Lockheed Martin underperformed the Zacks categorized Aerospace/Defense industry in the last one year, with the company’s gain of 20.3% lagging the industry’s addition of 25.3%. This might have been triggered by intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company (BA - Free Report) , Northrop Grumman Corp. (NOC - Free Report) and Embraer S.A. (ERJ - Free Report) . Also, the current quarter EPS estimates for the company moved south by 5 cents over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option for the time being.
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Trump Admin to Pursue Lockheed's F-16 Jet Sale to Bahrain
In a bid to further boost America’s aerospace and defense space, President Donald Trump’s administration plans to pursue the $5 billion sale of 19 Lockheed Martin Corp. (LMT - Free Report) F-16 jets to Bahrain. The deal had been stalled owing to human right concerns last year. As told to Congress, the U.S. State Department will reinstate the deal, putting aside human right conditions imposed by the Obama government.
Notably, F-16 jets – known as the fighting falcon – make one of the top-most combat proven fighter aircraft. Its latest version – F-16V – is a 4th generation multirole fighter, which comes with enhancements like an Active Electronically Scanned Array (AESA) radar, a modern commercial off-the-shelf (COTS)-based avionics subsystem, a large-format, high-resolution display and a high volume and speed data bus.
What Had Happened?
In Sep 2016, the State Department had notified Congress of the sale, which included 19 aircraft, 23 engines, radars and other avionics, air-to-air and air-to-ground ordnance and related equipment. However, Obama’s administration disapproved the deal citing Bahrain government’s failure to demonstrate noticeable progress on human right issues.
Back then, the U.S. government’s primary concern in relation to this deal involved Bahrain administration’s lack of efficiency in establishing human rights equality after its Sunni-dominated government suppressed non-violent opposition and dissolved the main group of the country’s Shiite majority.
How Lockheed Martin Reacted
As Bahrain is one of its valued customers, Lockheed Martin’s administration strongly urged the Obama government to reconsider the decision. In fact, ever since the contract got delayed, the company has been pushing for an approval, even after facing serious criticism from human right activists who feared this sale, if approved, might trigger further repression and instability in the Middle East.
Meanwhile, after the go-ahead from the Trump administration, the company refrained from making any comment. Nevertheless, Bruce Tanner, Lockheed Martin’s chief financial officer, last week revealed that the company has adopted ‘cautious optimism’ with respect to the potential approval of the sale, probably by this year.
Will the Deal See the Light of Day?
Though the Bahrain deal has crossed the primary hurdle, the entire process involves a lot many stages.
For final approval, this deal needs to undergo extensive congressional review for which the State Department has sent a notice to Congress and the review time is 40 days. Next, a formal notice is needed to be served to Congress as required by the Arms Export Control Act. Only after this, the licenses for the sale will get approved.
Our View
Being the primary defense contractor for Pentagon, deriving 27% of its revenues (as of 2016) from international customers, the Bahrain deal is sure to benefit Lockheed Martin substantially. In fact, due to shortage of F-16 deals from the U.S. government, this product line has already been suffering. Owing to the lack of orders, the company had also been considering the discontinuation of F-16 production by this August or September. On a brighter note, the approval of this deal will help Lockheed Martin retain its assembly line in Fort Worth, TX; for another year to 18 months (as told by Tanner).
We must note that Lockheed Martin does not solely depend on F-16 for revenue generation from military aircraft. It also manufactures other high-end, advanced military jets. A quick sneak peek into the company’s last released quarterly report also throws light on this. Evidently, sales from its Aeronautics business division, which manufactures aircraft, improved 23% in the fourth quarter of 2016, representing 39.3% of total sales. We expect to witness a similarly solid performance in going ahead as well.
Meanwhile, Lockheed Martin underperformed the Zacks categorized Aerospace/Defense industry in the last one year, with the company’s gain of 20.3% lagging the industry’s addition of 25.3%. This might have been triggered by intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company (BA - Free Report) , Northrop Grumman Corp. (NOC - Free Report) and Embraer S.A. (ERJ - Free Report) . Also, the current quarter EPS estimates for the company moved south by 5 cents over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option for the time being.
Zacks Rank
Lockheed Martin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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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 >>