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Lockheed Martin's Sikorsky Wins $49M Contract for Spare Parts

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Lockheed Martin Corp.’s (LMT - Free Report) business unit, Sikorsky Aircraft, recently secured a modification contract for supplying consumable spare parts used in various weapon systems. The original deal was a five-year base contract with one five-year option period for numerous aircraft platform spare supply parts.

About the Deal

Valued at $49 million, this contract has been awarded by the Defense Logistics Agency Aviation, Richmond, VI. Sikorsky will offer the spare parts for the U.S. Army, Navy, Air Force, Marine Corps and foreign military sales.

The contract will utilize fiscal 2018 defense working capital funds to finance the work, which will be executed in Connecticut. It is scheduled to be completed by Jun 30, 2020.

Factors in Favor of Lockheed Martin

Being Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. The company’s Global Supply Chain Services (“GSCS”) offer hardware replacements for both structural and consumable parts along with a certified vendor program.

For over 10 years, GSCS has been providing aircraft tires to all Navy and Marine Corps aviation activities worldwide. Within this period, the company’s performance included a 100% fill rate and on-time global delivery of 98.4%, resulting in a 400% reduction in retail inventories for Navy and Marine Corps activities within the United States.

Under various programs, GSCS also provides crucial support to the three U.S. Air Force depots by maintaining a constant supply of miscellaneous, small consumable parts in more than 295,000 parts bins with 90,000 unique line items at a bin fill rate of over 99.78%. In terms of international business as well, GSCS offers support services to 55 international and commercial customers, with over 40 years of experience.

Our View

In November 2015, Lockheed Martin had purchased Sikorsky Aircraft from United Technologies Corp. (UTX - Free Report) . The deal boosted Lockheed Martin’s military helicopter business and strengthened its position as the world’s largest defense contractor. Also, this acquisition added Sikorsky’s world-known aircraft, Black Hawk and a handful of combat and commercial choppers to Lockheed Martin's helicopter product line.

Going ahead, management expects to witness improved cash flows from the Sikorsky business unit in 2018 indicating possibilities of this business’ expansion in the near term. We believe generous fund flows from Pentagon, in the form of contracts, like the latest one, can certainly help the company achieve its desired business expansion, going ahead.

Price Performance

Shares of Lockheed Martin have rallied 17.4% over a year, underperforming the industry’s 34.5% gain. This underperformance can be attributable to the earlier budget cuts that might have put pressure on the top line as well as intense competition from some of the largest defense primes like The Boeing Company (BA - Free Report) and Northrop Grumman Corp. (NOC - Free Report) .



Zacks Rank

Lockheed Martin carries 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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