Lockheed Martin (LMT) Wins $4B F-35 Fighter Jet Contract
As per a media report, the U.S. aerospace and defense major Lockheed Martin Corporation (LMT) has been awarded a $4 billion contract from the Pentagon. Per the agreement, the company will develop the eighth batch comprising 43 units of F-35 fighter jets for the U.S. military and its allies, including Britain. The deal was initially expected to ink in either May or June of 2014.
Lockheed Martin continues to follow several initiatives to reduce costs for the F-35 program. In Jul 2014, the company and its two main partners, Northrop Grumman Corporation (NOC) and BAE Systems plc, inked an agreement, The Blueprint for Affordability, with the Department of Defense.
Per the agreement, Lockheed Martin, Northrop Grumman and BAE Systems will collectively invest $170 million in the coming three years to execute the cost-reduction initiatives for the F-35 program. Currently, the cost of an F-35 jet stands at more than $100 million. The aim of the agreement is to reduce the average production cost of an F-35 jet to around $80 million.
In addition, the Pentagon had inked a contract with United Technologies Corporation’s (UTX) unit, Pratt & Whitney, to curtail the cost of engines, which will be used in the seventh batch of F-35 jets, by 4.5%. These initiatives will collectively help to reduce the company’s cost of operations. United Technologies’ unit is expected to extend the discount for the eighth batch of F-35s as well.
The latest agreement will enable Lockheed Martin to trim the cost of the stealth jets by approximately 3%.
Lockheed Martin has a strong strategic alliance with the Pentagon and has supported several of its missions. The company has recently supplied the first aircraft from the sixth lot of F-35 fighter jets and is scheduled to deliver another 36 units in 2014. Lockheed Martin and the Pentagon are on track to finalize the eighth Low-Rate Initial Production.
The F-35 fighter jet is witnessing a sharp rise in demand in the defense market. In Sep 2014, the Republic of Korea agreed to purchase 40 units of Lockheed Martin’s F-35 Lightning II Joint Strike Fighter aircraft, the 5th Generation stealth fighter, for its F-X fighter acquisition program. The deliveries are expected to commence in 2018 and will run through 2025. This deal marked the country’s biggest-ever weapons purchase and was valued at around 7.3 trillion won ($7.1 billion).
A steady flow of contracts for the F-35 fighter jets will likely boost Lockheed Martin’s future cash inflow. The execution of cost reduction measures is expected to improve the company’s margins.
Zacks Rank
Lockheed Martin currently has a Zacks Rank #3 (Hold). The company reported favorable earnings in the third quarter of 2014. For more details read: Lockheed Martin Pulls Off Q3 Earnings Beat, Revenues Dip. Another better-ranked defense stock worth considering is The Boeing Co. (BA), carrying a Zacks Rank #2 (Buy).
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