Northrop Grumman Corp.’s (NOC - Free Report) business division, Northrop Grumman Systems, recently clinched a modification contract for the production and delivery of nine E-2D Advanced Hawkeye aircraft to Japan. The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.
Valued at $1.36 billion, this contract entails Foreign Military Sales (FMS). Work related to the agreement will be carried out in various locations inside and outside the continental United States including Augustine and Melbourne, FL; Syracuse, NY; El Segundo, CA, and a few more.
Significance of Hawkeye Jet
Northrop Grumman’s E-2D Advanced Hawkeye has been a game changer for the U.S. Navy, enabling it to conduct battle management command and control. Supported by the other industry leaders — Lockheed Martin’s (LMT - Free Report) AN/APY-9 radar system, L-3Harris Technologies’ (LHX - Free Report) ultra-high frequency electronically scanned array antenna and Raytheon’s (RTN - Free Report) T-56-A engines —the combat aircraft is in huge demand worldwide.
Backed by these features, the E-2D Advanced Hawkeye has become one of the key choices for the U.S. Navy as a combat jet. Evidently, the company won a $3.9-billioncontract from the Pentagon this April for the procurement of 24 E-2D Advanced Hawkeye jets.
Northrop Grumman Prospects
In recent times, widespread cross-border tensions have bolstered demand for military aircraft in the global aerospace-defense market. This upside can be further attributed to advancements and integration of new tactical and logistical features along with the inclusion of improved radar systems and the availability of advanced system engineering services. Being a prominent aircraft manufacturer, Northrop Grumman is benefiting from such crucial developments in the form of increased contract flows for its combat-proven jets like Hawkeye.
Of late, countries like India, Japan and Saudi Arabia have been spending significantly on strengthening their arsenals. This, in turn, has been favouring defense primes like Northrop Grumman. In this context, it is imperative to mention that FMS continues to be a key catalyst for the company. During second-quarter2019, Northrop Grumman’s international sales comprised16% of its total sales, mirroring 15.6% year over year growth. The latest contract win should allow the company to maintain this trend in upcoming quarters.
For more than 50 years, Northrop Grumman has partnered with Japan to provide a range of capabilities and technologies in defense, security and communications. In 2014, the Ministry of Defense in Japan competitively selected the E-2D to fulfill the nation's airborne early warning requirements. Since then Northrop Grumman has been receiving notable Hawkeye- related contracts from Japan.
With Japan’s military having requested for an eighth straight annual increase in the nation’s defense spending this August, there remains room for growth in Northrop Grumman’s profit on account of FMS deals.
In a year’s time, shares of Northrop Grumman have gained 20.6% compared with the industry’s 6.5% growth.
Northrop Grumman 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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