Sikorsky Aircraft Corp, a subsidiary of United Technologies (UTX) and maker of the legendary Black Hawk Helicopters received a new 5-year contract from the U.S. Army and Navy. The contract, valued at $8.5 billion is primarily for the purchase of a baseline quantity of 653 BLACK HAWK and SEAHAWK® helicopters through December 2017.
This five-year contract is expected to generate considerable savings for the U.S. Government compared to purchasing the same quantity under five separate annual agreements.
This new 5-year agreement also gives the Army and the Navy an option to order as many as 263 more aircraft under the same contractual terms. If the option is exercised, the contract value of the agreement is expected to go up to $11.7 billion. However, the actual production quantity will be determined by the government’s budgetary spend.
This multi-year contract not only helps the Government but also Sikorsky and its suppliers in the long run by providing them economies of scale. In addition, through this contract of delivering similar number of aircrafts year after year, the government has also ensured that Sikorsky can stabilize its supply base over the specified time period.
This is the eighth multi-year order received by Sikorsky for Black Hawks since 1982. The agreement was based on a multi-year procurement plan that was approved by the Congress for military services through 2016.
In the recently reported quarter, Sikorsky reported a revenue decline of 15% due to reduced aircraft deliveries for international development programs (12%), fewer aircraft sales to the U.S. government (5%) and lower sales from customer funded development programs (2%).
UTX currently holds a Zacks Rank of #3 which implies a short-term ‘Hold’ rating on the stock.
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