Lockheed Martin Corp.’s LMT business unit, Aeronautics, has won a contract to offer supplies and services for the F-35 Lightning II Joint Strike Fighter.
The contract, which is valued at $53.5 million, has been awarded by Naval Air Systems Command, Patuxent River, MD.
Per the deal, Lockheed Martin will provide milestone event capabilities, including retrofit modification kits and installation services for the Marine Corps, Air Force, Navy as well as non-Department of Defense (DoD) participants.
The modification includes 50% of the work for the Marine Corps, 21% for the Air Force, 18% for the Navy and 11% for non-DoD participants.
Work is scheduled to be completed by July 2021 and September 2025 for DoD customers and non-DoD participants, respectively. It will be performed in Fort Worth, TX, and will use fiscal 2016 aircraft procurement (Marine Corps and Air Force), fiscal 2017 aircraft procurement (Navy) and non-DoD participants’ funds.
Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine 5th Generation fighter aircraft. It 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 Corp. NOC contributed its expertise in carrier aircraft and low-observable stealth technology to this program. Moreover, BAE Systems plc’s BAESY short takeoff and vertical landing experience, and air systems sustainment supported the jet’s combat capabilities. Also, Pratt & Whitney, a unit of United Technologies Corporation UTX, provided F-35s with the F135 propulsion system, which is the world's most powerful fighter engine.
We remind investors that despite offering superior air security and stability, the F-35 program has been facing some engine-related technical issues for the last few years. Additionally, it has been repeatedly criticized by President Trump on being an overtly expensive project.
In this context, Lockheed Martin finally inked an $8.5 billion deal with Pentagon this February. Per the agreement, the company will deliver 90 F-35s of the 10th Lot at a historically low rate either forced by Trump’s intervention or to maintain management’s earlier projection of cutting down cost by 6–7%.
Going forward, the company is likely to adopt a cost-saving initiative to lower sustainment costs for F-35 by 10%, over the next couple of years. This, in turn, will result in cost savings of $1 billion over a five-year period. In fact, we believe the recent contract win will enable Lockheed Martin to take a step toward achieving its goal, so that it could provide more of these combat aircraft at an efficiently reduced rate.
Meanwhile, Lockheed Martin is enjoying steady flow of contracts from the Pentagon since it has reduced its price. In August, the company won a modification contract, worth 5.6 billion, to offer low-rate initial production (LRIP) of the 11th lot of F-35 Lightening II Joint Strike Fighter. Again, it won a modification contract, worth $258 million, to offer LRIP of the 10th lot of F-35 Lightening II Joint Strike Fighter.
Interestingly, with the U.S. government expecting to spend approximately $400 billion in the upcoming decades to develop and purchase 2,443 F-35 jets, Lockheed Martin is trying its best to effectively reduce the price of this program. Additionally, the government might place larger orders. This, in turn, will boost the company’s profits in the near term.
Lockheed Martin’s stock was up 17.7% in the last one year, underperforming the broader industry’s gain of 33.1%. This could be because the earlier budget cuts have put pressure on the top line while the present defense budget is more in favor of the sector. Furthermore, we believe that budget deficits and political uncertainty might make future defense budgets vulnerable to cutbacks.
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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