On a generally good Monday for the stock market, AeroVironment (AVAV +1.11%) was a notable exception. The specialized defense company saw its share price sink by almost 10% that day, due to a work stoppage on a very lucrative arrangement between the company and the U.S. government. By contrast, the S&P 500 index, largely free of such burdens, inched 0.1% higher on the day.
Drone dispute
AeroVironment, which focuses on developing and manufacturing combat drones such as the popular Switchblade, disclosed in a regulatory filing that a protest has been filed with the U.S. government against the Army's current Switchblade contract with the company. As a result of this action, the Army issued a stop work order on the contract.
The protest, filed with the federal Government Accountability Office (GAO), is currently being considered by that organization. The company expects the GAO to render a decision on the matter by Dec. 16.
At the end of August, the Army awarded an indefinite-delivery, indefinite-quantity contract for Switchblade systems to AeroVironment. The contract, the completion date for which is Aug. 26, 2029, has a ceiling value of $990 million.
The company took pains to add that the Army stop work order has no impact on its other business.
NASDAQ: AVAV
Key Data Points
Hoping the stoppage will stop
The reasoning for the protest is not yet apparent. As the contract was concluded on a sole-source basis -- i.e., it's been determined that AeroVironment is the only entity capable of satisfying its requirements -- the protesting party could feel another defense contractor (or contractors) is able to perform the work.
Regardless, this is at least a hiccup in a highly critical, and very lucrative, deal for AeroVironment. Hopefully for the company and its shareholders, it'll soon be resolved in their favor.
