Lockheed Martin (LMT) to Deliver 43 More F-35s in $4B Deal with Pentagon
PUBLISHED ON: Oct 24, 2014
Shares of the Lockheed Martin Corporation (LMT) were up +0.56 or +0.31 percent to $181.23 in premarket trading this morning, after news yesterday that the company had reached an agreement with the U.S. Department of Defense for the delivery of another 43 F-35 fighter jets. Lockheed Martin stock closed at $180.67, up +4.66 or +2.65 percent in Thursday's regular trading session.
Bethesda, Maryland based Lockheed Martin Corporation is the result of the $10 billion 1995 merger of Martin Marietta and the Lockheed Corporation, and is a major global aerospace and defense contractor.
According to sources familiar with the deal, Lockheed Martin and U.S. Defense Department officials had reached an agreement for the delivery of an eighth batch of 43 F-35 fighter jets worth approximately $4 billion. The order will reduce the cost of each jet by 3 percent and will provide aircraft for the U.S. armed forces, Britain and other U.S. allies. Mike Rein, a Lockheed spokesman said that, "We are encouraged by progress taking place and look forward to an agreement in the near future".
The 27 fighter jets destined for the U.S. Air Force will be as much as four percent lower in price. The deal has been in the works for some time, with an agreement expected to be reached in May or June. Nevertheless, negotiations were delayed due to an engine failure of an Air Force jet on June 23rd, which grounded the entire F-35 fleet for a number of weeks.
Last week, the Pentagon signed a deal with United Technologies' (UTX) Pratt & Whitney division â?? which makes the F-35 engines ÃƒÂ¢?? to provide a seventh batch of F-135 engines. Pratt & Whitney said in September that the seventh and eighth engine batches would be as much as 7 to 8 percent cheaper than prior batches. Pratt & Whitney is expected to reach a similar agreement to lower engine prices on the eighth batch of F-35s as soon as the deal between Lockheed and the Defense Department in finalized.
Lockheed Martin last month announced it expected the F-35 unit cost to decline to $80-$85 million by 2019, the current cost of an F-35 is $115 million. Lockheed delivered its first F-35 for the sixth batch on Wednesday. The company has delivered 23 of the 36 F-35s it expects to deliver this year. The company said it is still on track to deliver the 36 planes despite the grounding earlier this year.
Lockheed Martin stock is reacting cautiously to the news, after announcing better than expected earnings earlier this week. The company reported Q3 EPS of $2.76, $0.04 better than analyst expectations. Revenue however came to $11.11 billion compared to analyst forecasts of $11.28 billion. The stock is trading just shy of its yearly high in today's premarket, with the stock likely to make a new high in today's regular trading session.
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