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Lockheed Martin Wins $47M Modification Deal for F-35 Jets

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Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics business segment recently secured a delivery order in relation to F-35 jets. Work related to the deal is scheduled to be over by June 2019.

Details of the Deal

Valued at $46.6 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the deal, the company will provide non-recurring engineering, the development of design documentation, and the creation of modification instructions.

These efforts will support service life extension and enable the developmental test F-35 aircraft to maintain currency with delivered technology.  Notably, the project includes 38% of the work for the U.S. Navy, 38% for the Marine Corps and 24% for non-U.S. DoD participants. Fiscal 2018 research, development, test and evaluation (Navy and Marine Corps); and non-U.S. Department of Defense (DoD) participant funds will be utilized to complete the task at Fort Worth, TX.

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. Currently, three variants of F-35 are set to replace five fighter jets for the U.S. Air Force, Navy and Marine Corps as well as a variety of fighter jets for at least 10 other countries.

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

Recent Developments

The F-35 program is Lockheed Martin’s largest program, which generated 24% of its total net sales in first quarter of 2018. As of May 14, 2018, the company delivered more than 290 F-35 jets to the United States and its allies.

However, critics have condemned this program as the costliest military program for the U.S. government. It was only after President Trump’s intervention, in February 2017, that Lockheed Martin ultimately announced its decision to cut down F-35’s cost significantly.

Now, the company’s current cost-saving initiative to lower sustainment costs for F-35 project is expected to result in cost savings of $1 billion over a five-year period. In sync with this, per a recent report by Lockheed Martin, it targets to reduce the cost of an F-35A to $80 million by 2020, with production enhancements.

Also, additional improvements implemented in these planes like the software upgrades, which were a part of this latest contract, will allow the company to further reduce the cost of this program. Moreover, with the U.S. government’s current inventory objective of 2,456 F-35 aircraft alongside its reduced price we may expect to witness a continued ramp up in the production of these jets, in coming days. No doubt, Lockheed Martin enjoys a solid growth prospect for F-35 program, which in turn, will surely boost its profit margin.

Price Movement

In a year’s time, shares of Lockheed Martin have rallied about 14.2% compared with the broader industry’s increase of 39.7%. The underperformance was most probably caused by intense competition that the company faces domestically as well as internationally.

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.

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