Lockheed Martin Awarded $842 Million F-16 Contract by Morocco

Lockheed Martin Corporation (LMT) was awarded a contract worth $841.9 million for supplying 24 F-16 Fighting Falcon jet fighters and related equipment for the government of Morocco. This will boost the Aeronautics segment which in recent time had witnessed lower volume from the F-22 program.

The F-16 Fighting Falcon jet fighter aircraft was developed by General Dynamics Corporation (GD) in 1976. However in 1993, General Dynamics sold its aircraft manufacturing business to Lockheed Martin.

In recent times, Lockheed Martin Corporation has witnessed the cancellation of quite a few prominent programs such as the TSAT Mission Operations System (TMOS) contract, F-22 Raptor program and the VH-71 Presidential Helicopter (VH-71) program. Lockheed Martin’s high-cost platform programs are the prime targets of the Obama administration for budget cuts. The addition of $841.9 million would boost the beleaguered backlog of the company, which had shrunk to $76.4 billion after the first nine months of fiscal 2009 from $80.9 billion at year-end fiscal 2008.

Lockheed Martin remains a key player within the aerospace and defense segment and mainly competes with Boeing Company (BA), Northrop Grumman Corporation (NOC) and EMBRAER - Empresa Brasileira de Aeronáutica S.A. (ERJ). The company’s customer base includes the U.S. Government, foreign governments and other commercial buyers. Lockheed’s traditional defense focus appears strong, with increasing interest from domestic and international customers. In addition, management intends to explore strong business opportunities beyond the traditional defense market, specifically in the areas of civil, governmental and commercial space businesses.

Going forward, we believe Lockheed Martin has significant upside potential based on strong defense outlays throughout 2009–10, above-industry average return-on-invested-capital and expanding product lines. However, these are offset by risks related to key projects execution, fate of high cost platform programs, lower top-line results in the Aeronautics segment, higher pension liability and lower government satellite programs. We maintain our market Neutral recommendation on the shares.