Lockheed Martin's Unit Wins $23M Deal To Support F-35 Jet

Lockheed Martin Corp.’s (NYSE:LMT) business segment, Aeronautics has won a modification contract to procure 53,164 level-of-effort hours to support air system software integration. The company will also secure 53,122 level-of-effort hours to support flight test operations for the F-35 aircraft platform.

Contract Details

Valued at $23 million, this contract has been awarded by the Naval Air Systems Command, Patuxent River, MD. The services will be used by the Air Force, Navy, Marine Corps and non-U.S. Department of Defense (DoD) participants.

Notably, the contract covers 40% of the purchases for the Air Force, 20% for the U.S. Navy, 20% for the Marine Corps and non-U.S. DoD participants each.

Majority of the work related to this deal will be carried out in Fort Worth, TX, while the rest will be executed in Palmdale, CA and Patuxent River, MD. The deal is expected to be complete by February 2018.

Lockheed Martin will utilize fiscal 2018 operations and maintenance (Air Force, Navy and Marine Corps) and non-U.S. DoD participant funds to complete the work.

A Brief Note on F-35

Lockheed Martin’s F-35 Lightning II is a 5th Generation, single-seat, single-engine fighter jet. It offers a combination of advanced stealth as well as fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment.

With Lockheed Martin being the primary partner of the F-35 program, it has also been supported by an international team of leading aerospace majors like Northrop Grumman Corp. (NYSE:NOC) , BAE Systems (LON:BAES) plc (OTC:BAESY) and Pratt & Whitney — an unit of United Technologies Corporation (NYSE:UTX) .

Our View

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 for being an overtly expensive project, in the recent past.

Therefore, Lockheed Martin inked an $8.5-billion deal with Pentagon in February 2017. Per the agreement, the company will deliver 90 F-35s of the 10th Lot at a historically low rate to maintain management's earlier projection of cutting down cost by 6-7%.

Over the next few years, the company is likely to adopt a cost-saving initiative to lower sustainment costs for F-35 by 10%, This, in turn, will result in cost savings of $1 billion over a five-year period.
In fact, we believe that the recent contract win will also enable the company to take a step toward achieving this goal and allow it to provide more of these combat aircraft at an efficiently reduced rate.

Meanwhile, Lockheed Martin is enjoying steady flow of notable contracts from the Pentagon since reduction of its F-35 price. In July 2017, the company secured a modification contract worth $5.6 billion to offer low-rate initial production (LRIP) of the 11th lot of F-35. Again, in August 2017 it won a contract worth $258 million to offer LRIP of the 10th lot of F-35.

Furthermore, with the U.S. government expecting to spend approximately $400 billion in the upcoming decades for the development and purchase of 2,443 F-35 jets, Lockheed Martin is trying its best to effectively reduce the price of this program. Therefore, the government is likely to place larger orders for this program, which in trun will boost the company’s profits, in days ahead.

Price Movement

Lockheed Martin’s stock was up about 16.8% in a year compared with the broader industry’s gain of 34.8%. This underperformance could have been caused by the intense competition owing to its broad portfolio of products and services domestically as well as internationally.

Zacks Rank

Lockheed Martin 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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