L3 Technologies Inc.’s (LLL - Free Report) Vertex Aerospace business unit recently clinched a modification contract for providing additional support to the U.S. Navy’s T-45 Goshawk aircraft system. Work related to this deal is scheduled to be over by September 2018.
Details of the Deal
Valued at $37.6 million, the contract was awarded by the Naval Air Warfare Center Training System Division, Orlando, FL. Per the terms of the agreement, Vertex Aerospace will offer additional organizational, intermediate and depot level maintenance, logistics as well as engineering services to support and maintain approximately 200 T-45 Goshawk aircraft and aircraft systems.
It will also provide equipments to support flight and test and evaluation operations. Majority of the work will be carried out in Naval Air Station (NAS) Kingsville, TX and NAS Meridian, MS; while the rest will be executed in NAS Pensacola, FL and NAS Patuxent River, MD. Funds will be provided on issuance of individual task orders.
A Brief Note on T-45 Goshawk aircraft
T-45 Goshawk — manufactured by Aerospace giant The Boeing Company (BA - Free Report) — is a militarized version of the land-based British Aerospace Hawk. Its latest version, the T-45C, with a digital cockpit to train pilots destined for the F/A-18 Hornet, the AV-8B Harrier II and other carrier-based aircraft, made its first flight in October 1997. It had two multifunction displays in each cockpit; the displays provided navigation, weapon delivery, aircraft performance and communication data.
Although, Boeing delivered the 221st and final T-45 training jet to the Navy in November 2009, it continued to support the T-45 fleet by providing engineering, logistics and support equipment in partnership with BAE Systems plc (BAESY), which supplied the aircraft’s rear and center fuselage sections, wing assembly and vertical tail.
L3 Technologies is transforming its business portfolio to focus more on defense electronics, communications and ISR markets where it has leading positions. Toward this end, its Aerospace Systems segment, constituting Vertex Aerospace unit, delivers integrated solutions for the global ISR market and provides engineering, modernization, upgrade, sustainment, and maintenance and logistics support for a wide variety of aircraft and ground systems.
However, during the third quarter, owing to the loss of the recompetition of the Fort Rucker Maintenance Support contract, the company decided to sell off its Vertex Aerospace unit, anticipating that the carrying amount of the goodwill for this unit may not be recoverable. So the latest contract may not benefit L3 Technologies.
Nevertheless, excluding Vertex Aerospace, units of L3 Technologies caters to various defense-related products, which we believe will help the company to maintain its leading position in the global security market. In fact, divesting Vertex Aerospace seems to be a wise decision as continuing with a loss-incurring segment offers no benefit to a company’s growth. Instead streamlining its operations toward other realms of the defense space will surely be profitable for L3 Technologies. Toward this end, in the third quarter, the company combined its Greenville and Waco operations of Aerospace segment and reduced headcount by over 700 people, to cut cost and add more value to its business.
Meanwhile, the defense industry got a heavy boost when the U.S. Senate passed fiscal 2018 defense policy bill worth $700 billion this September. This increased budget is expected to rake in more orders for defense majors such as L3 Technologies, Northrop Grumman Corp. (NOC - Free Report) and Lockheed Martin Corp. (LMT - Free Report) .
L3 Technologies stock has returned 21.8% over a year, underperforming the 30.3% rally of the industry it belongs to. This might have been caused by the earlier budget cuts implemented by the U.S. government.
L3 Technologies currently 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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