Lockheed's Unit Wins $131M Navy Deal For A-RCI Services

Defense giant Lockheed Martin Corp.’s (NYSE:LMT) business segment, Rotary and Missions Systems (RMS), recently secured a reimbursement contract to procure engineering services for Acoustic Rapid Commercial-Off-The-Shelf Insertion (A-RCI) Technical Insertion (TI) 18-20. Work related to this deal is expected to be over by Aug 2018.

Details of the Deal

Valued at $130.8 million, this contract was awarded by the Naval Sea Systems Command, Washington, DC. The deal includes options, which, if exercised, will bring its cumulative value to $1.2 billion. The majority of the work will be carried out in Manassas, VA.

Lockheed Martin will utilize fiscal 2017 research and development, 2015 shipbuilding and conversion, 2016 other procurement, and 2017 other procurement funds for the Navy to complete the work. The contract includes foreign military sales (FMS) to Finland, France, Germany and Singapore.

A Brief Note on A-RCI Systems

A-RCI is an open-architecture sonar system that uses legacy sensors. It also replaces central processors with commercial off-the-shelf (COTS) computer technology and software, within submarines. This system helps the U.S. Navy in searching, detecting and tracking submarines and surface vessels in open-ocean and littoral sea environments without being counter-detected. It also facilitates covert execution of Naval Special Warfare missions as well as under-ice operations.

In the 1990s, Lockheed Martin unveiled A-RCI Systems, which allowed frequent hardware and software upgrades. The system was highly effective and offered improved acoustic quieting measures at a far lower cost than previously possible. Notably, the A-RCI TI 18-20 engineering services provide engineering development to support modernization requirements.

Our View

With the rapid rise in terrorist attacks over the last decade, the U.S. Navy’s focus has shifted to littoral waters, the shallow areas near coastlines. These are the areas that it must patrol and defend against small subs, underwater mines and fast attack boats. Considering this, the need for timely detection and localization of quiet subs in the especially noisy shallow-water sonar field has made the ARCI submarine sonar system all the more critical. Constant upgrades of the system have made it more valuable for the nation’s naval base and an attractive choice of defense equipment for the U.S. allied countries.

As geopolitical uncertainty continues to prevail across the globe, we expect renowned defense contractors like Lockheed Martin to win more such deals in the days to come. A quick peek into the company’s recently released fourth-quarter earnings numbers also reflects this. In particular, the RMS segment generated revenues of $3.1 billion in the first quarter of 2017, reflecting 28% of the company’s total revenue.

Moving ahead, the company's improved cash outlook for 2017 reflects enhanced cash performance at the Rotary and Mission Systems division. That said, the aforementioned contract gain has the potential to further boost revenues of this business division.

Stocks that Warrant a Look

Investors interested in other stocks from the Aerospace/Defense industrymight consider prominent players like General Dynamics Corp. (NYSE:GD) , Textron, Inc. (NYSE:TXT) and The Boeing Co. (NYSE:BA) , which contribute substantially to this industry’s growth.

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