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Lockheed Martin's (LMT) Unit Wins $1.29B Deal for F-35 Jet

Zacks Equity Research
·4-min read

Lockheed Martin Corp.’s LMT Aeronautics business division recently won a $1.29-billion contract in relation to the F-35 Lightning II Joint Strike Fighter Air Systems. This deal will cater to the U.S. Air Force, Marine Corps, Navy, non-Department of Defense (DoD) participants along with foreign military sales (FMS) customers.

Details of the Deal

Per the terms, Lockheed Martin will provide a consortium of services, which include ground maintenance activities, depot activation activities, automatic logistics information system operations and maintenance, health management implementation and support, supply-chain management along with other services to support the in-service F-35 Lightning II Joint Strike Fighter air systems.

Work related to the deal will be performed in Fort Worth, TX; Orlando, FL; alongside other locations and is expected to get completed by December 2021. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Rising Demand for the F-35 Lightning II Program

Increasing security threats on a global scale and erratic geopolitical situations have boosted the demand for enhancing the nations’ defense budget, of which combat aircraft such as the F-35 jet constitutes a major portion. This dominance can be easily proven by the frequent contract wins witnessed by this program, both from Pentagon and other U.S. allies.

For instance, in October 2019, Lockheed Martin finalized a $34-billion agreement for the production and delivery of 478 F-35s at the lowest aircraft price in the history of the program. Additionally, earlier in 2020, it secured a $1.93-billion deal to support the F-35 program.

The F-35 program has been supported by an international team of leading aerospace majors, such as Northrop Grumman NOC, BAE Systems BAESY and Pratt & Whitney, a unit of Raytheon Technologies RTX. Notably, Northrop Grumman rendered its expertise in carrier aircraft and low-observable stealth technology to this program. Also, BAE Systems’ short takeoff and vertical landing experience, and air systems sustainment supported the jet’s combat capabilities, while Pratt & Whitney offered its combat-proven engine to this jet.

Cost-Reduction Initiatives Benefiting the F-35 Program

Interestingly, as far as this program’s market price is concerned, recently we have witnessed a notable drop in the price of this project, which has made it all the more lucrative for both existing and prospective buyers. Per a report by Bloomberg, Pentagon’s costliest program, the F-35, is looking less expensive, with the estimate for development and procurement declining 7.1% to $397.8 billion as of May 2020. The overall price per jet has dropped below the $80-million mark and is expected to drop further.

Notably, such a decline in prices along with a consistent demand rise will usher in more contract wins for Lockheed Martin, like the latest one, thereby boosting its revenues.

Growth Prospects

Lockheed’s Aeronautics unit successfully delivered 31 F-35 jets during the third quarter of 2020. Considering its growing global stature, we expect this business segment to consistently perform such impressive deliveries in the coming days as well.

Looking ahead, the production of F-35 jets is expected to continue for many years, given the U.S. government's current inventory target of 2,456 aircraft for the Air Force, Marine Corps and Navy. Hence, we expect Lockheed Martin to witness more order inflows for F-35.

Price Movement and Zacks Rank

Shares of this Zacks Rank #3 (Hold) company have lost 9.1% in the past year compared with the industry’s decline of 20.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
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