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Twin Contracts for Textron

Zacks Equity Research

Textron Marine & Land Systems, a unit of Textron Inc. (TXT), has received a fixed-price, incentive-fee contract worth approximately $213 million from the U.S. Navy under a Ship-to-Shore Connector (“SSC”) program. The contract includes options for the delivery of up to eight production craft worth $570 million by 2020.

Per the original contract, the company will be responsible for the complete designing and construction of an initial SSC Test and Training Craft. The task has to be completed by February 2017. The main aim of the SSC program is to retain the Navy’s incomparable transport options from ship to shore and beyond.

This SSC will replace the Landing Craft Air Cushion (:LCAC) and help the Navy in landing at more than 80% of the world's shorelines for the next 30 years. SSC will endow the surface assault portion of the U.S. Joint Expeditionary Maneuver Warfare tactical plan with the capability to project and sustain military operations from the sea, independent of tides, water depth, underwater obstacles, or beach gradient.

The Textron team for the contract includes Alcoa Inc. (AA) for aluminum alloys and structural engineering and L-3 Communications Holdings Inc. (LLL) for command, control and navigation systems. Work will be performed at New Orleans, Camden, Great Britain, St Louis, Indianapolis and Eatontown. However, final manufacturing will take place at Textron Marine & Land Systems’ shipyard near New Orleans, with an area of 600,000 square foot.

Meanwhile, AAI Unmanned Aircraft Systems, an operating unit of Textron, received a contract worth $358 million from the Army and Marine Corps for engineering support and system upgrades of RQ-7B Shadow Tactical Unmanned Aircraft Systems (:TUAS). This will create a fleet of 45 upgraded systems out of which delivery of 43 systems to the Army and the remaining 2 to the Marine Corps are expected to begin in late 2013.

The upgraded Shadow aircraft is built on the same architecture that has proven highly successful on the current Shadow aircraft throughout nearly 750,000 flight hours. The modernization has increased the aircraft’s endurance capacity from six to nine hours, has extended the wing with hard points to carry external stores and payloads and added an electronic fuel injection engine for greater reliability.

Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. It is also a provider of solutions and services for aircraft, fastening systems, and industrial products and components. The company is involved in numerous modernization programs.

Moreover, Textron’s diversified presence across commercial, manufacturing and industrial products, as well as financing operations, insulates it from specific business risk. However, we prefer to remain on the sidelines due to the defense spending cutbacks and lower backlog at Cessna, the company’s business jet division. The rate of recovery of the business jet market still remains tenuous. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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