Northrop Clinches $9.9B DoD Contract

Zacks

Los-Angeles based defense contractor Northrop Grumman Corp. (NOC) turned out to be the clear winner in yesterday’s contract appropriations made by the Department of Defense (DoD). Northrop Grumman received a mammoth contract, worth $9.9 billion, from the U.S. Air Force to offer modernization and support services to the B-2 stealth bomber program.

The contract calls for a broad range of enhancements, sustainment logistics services including engineering, software maintenance and support equipment. Additional services like depot maintenance of the aircraft fleet and other interim support are also a part of the contract requirements.  

The base contract is slated to be completed by May 2, 2019 with an option for extension through 2024. The tasks related to the order will be performed primarily at Palmdale, Calif.

The B-2 bombers are loaded with stealth technology that allows it to sneak past enemy anti-aircraft defenses thereby avoiding detection. It is also designed to carry heavy arsenals including nuclear bombs. B-2 bomber has mostly been used in bombing missions to weaken the defense of the opponents at war due to its superior flying capacity and capability to carry large quantity of bombs.

The B-2 project came under heavy pressure as the U.S. government is planning to trim defense expenditure, despite it being equipped with cutting-edge technologies. Immense pressure from public forced the DoD to reduce its purchase order from the initial 132 B-2 to just 21 aircrafts.

However, recent media reports suggest that the U.S. government might shell out significant money to develop next generation stealth bombers. The government plans to replace the ageing stealth fleet with a more sophisticated new variant, Long-Range Strike-B (LRS-B) heavy bomber, by 2025.

Although defense giants like Lockheed Martin Corp. (LMT) and The Boeing Company (BA) could be vying for the plum contract, Northrop Grumman with its stealth-building experience might be the favorite to win.

Going ahead, the ongoing sequestration seems to have a moderate impact on big entities like Northrop. Despite reduction in the frequency of big ticket contract flows, the company has managed to clinch some big orders. In early 2014, it received a $200 million contract for the acquisition and sustainment of the Embedded Global Positioning System Inertial Navigation System.

In addition, the company’s prospects will further be buoyed by increasing foreign military sales led by rising security tensions in the Middle East and in Asia between China and Japan.

Currently, Northrop carries a Zacks Rank #3 (Hold). Another better-placed defense operator is Embraer SA (ERJ), carrying a Zacks Rank #1 (Strong Buy).

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