Over the past one week, though defense primes smarted under market depreciations, it did not stop them from picking up big ticket programs from the Pentagon’s funding list. To that effect, Boeing BA secured a major contract from the U.S. Air Force yesterday. Yet, its share price was down last week and 2.38% yesterday. This was because the company announced yet another delay to its KC-46 military tanker program late last Friday.
Among the other important headlines last week, Raytheon RTN, Lockheed Martin LMT and L-3 Communications Holdings LLL won important contracts.
(Read Defense Stock Roundup for May 24, 2016 here.)
Recap of the Week’s Most Important Stories
1. Boeing secured a big contract from the Pentagon’s daily funding session yesterday. The company has been awarded a $3.2 billion contract modification to a previously awarded contract for Joint Direct Attack Munition (“JDAM”) tailkits, the Pentagon said.
Boeing will provide JDAM strap-on inertial guidance kits with the capability of receiving guidance updates from Global Positioning Systems or GPS to boost weapon accuracy for conventional inventory bombs.
The original contract was awarded on Oct 30, 2014, for a maximum value of $1.7 billion. However, this was boosted by $1.4 billion due to warfighter demand and to replenish depleted inventories, per the Defense Department. Work under the contract will be carried out at St. Louis, MI, and is slated to be complete by Sep 29, 2020. This contract also involves foreign military sales (“FMS”).
Boeing shares however declined on Tuesday following the announcement late last week that there will be a delay in the delivery of new KC-46 tankers to the U.S. Air Force. Boeing was expected to deliver 18 KC-46 tankers by Aug 2017. But as things stand now, Boeing is likely to miss the deadline and may have to incur additional charges to the $1.3 billion already taken on its largest military program.
The Air Force said that the first few KC-46 tankers are now due to arrive in late summer or early autumn of 2017 and all 18 are expected to be delivered by Jan 2018.
2. Lockheed Martin Corp. has won a contract from the U.S. Navy to build the guidance and control systems for the MK 48 Mod 7 torpedoes. The contract has a potential value of $424.7 million, if all options are exercised.
Per the contract, Lockheed Martin will supply MK-48 common broadband advanced sonar system upgrade kits as well as MK 48 heavyweight torpedo guidance and control sections to the Navy.
The latest contract is part of a five-year initiative to grow the inventory of the MK 48 Mod 7 heavyweight torpedoes for the submarine fleet. Over the next five years, the company may receive production orders for another 250 torpedoes from the Navy to be used as anti-submarine warfare and anti-surface warfare weapons by all classes of submarines.
3. Raytheon Co.’s Integrated Defense Systems division has won a contract from the U.S. Navy for the production of Aegis Weapon System AN/SPY-1D(V) Radar Transmitter Group, Missile Fire Control System MK 99 equipment, and associated engineering services.
This contract falls under an FMS program that includes purchases for South Korea and Japan apart from purchases for the U.S. Navy. Work under this contract is expected to be completed by Oct 2022.
4. L-3 Communications Vertex Aerospace LLC, a subsidiary of L-3 Communications Holdings Inc., recently received a contract from the U.S. Navy for logistics services for the C-12 utility lift aircraft. The contract is valued at $302.2 million and will run through Jul 2021.
Per the contract, the company will be responsible for post-production services, full aircraft maintenance, logistics support and the supply of materials for Marine Corps Reserve C-12 and US Navy TC-12B trainer aircraft.
Modeled on Beechcraft Super King Air and Beechcraft 1900, C-12 Huron is the military version of an executive passenger and transport aircraft. It is mainly used by the U.S. Air Force, U.S. Navy, U.S. Army and U.S. Marine Corps for a wide array of functions including range clearance, embassy support, medical evacuation, VIP transport, and passenger and light cargo transport.
5. Huntington Ingalls Industries, Inc. HII has nabbed a contract from the U.S. Navy for advance planning of the detail design and production of the fiscal 2018 nuclear powered aircraft carrier, USS Enterprise (CVN 80). The contract, valued at $152 million, entails Huntington Ingalls to carry out research and development, integrated designing, engineering, and purchase of long lead-time materials.
The Enterprise (CVN 80), Gerald R. Ford class’ third aircraft carrier, bears the name of the Navy’s first nuclear-powered aircraft carrier, USS Enterprise (CVN 65). Once it enters service, the USS Dwight D. Eisenhower, a Nimitz-class ship, will be retired from service.
Performance
Almost all the major defense stocks ended in the red last week. Lockheed Martin depreciated the most followed by Boeing.
In the past six months, however, the picture is somewhat mixed. Northrop Grumman remained in the leading position while Boeing was the biggest loser.
The following table shows the price movement of the major defense players over the past five trading days and during the last six months.
|
Company |
Last Week |
Last 6 months |
|
LMT |
-1.29% |
8.83% |
|
BA |
-1.06% |
-13.12% |
|
GD |
-0.76% |
-2.82% |
|
RTN |
-0.29% |
5.36% |
|
NOC |
-0.94% |
14.02% |
|
COL |
-0.52% |
-4.08% |
|
TXT |
-0.57% |
-10.80% |
|
LLL |
-0.82% |
12.83% |
What’s Next in the Defense World?
Lockheed Martin Chairman, President and CEO Marillyn Hewson will present at the Bernstein 32nd Annual Strategic Decisions Conference 2016 on Jun 1.
Northrop Grumman will attend the Bernstein Strategic Decisions Conference 2016 on Jun 3.
Boeing will attend the Bernstein Strategic Decisions Conference on Jun 2, 2016. Boeing as well as Rockwell Collins COL will also attend the Deutsche Bank Global Industrials and Materials Summit on Jun 8.
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