Anticipated cuts in the defense budget have defense investors worried. In the case of Lockheed Martin (NYSE: LMT), these fears have been ameliorated by some large recently won contracts. The company bagged a foreign military sales contract from Japan and another from the National Science Foundation to facilitate research activities in Antarctica. Together, the two contracts could be worth up to $8 billion. Add on the latest, the sale of Terminal High Altitude Area Defense, or THAAD, to the United Arab Emirates, and it's been a pretty good month for Lockheed.
Let's dig deeper.
Missile protection
The United States is selling missiles and defense technology worth $3.5 billion to United Arab Emirates as part of a military buildup in Mideast countries to protect them from the threat of Iran. The deal will include supply of missiles, spare parts, THAAD batteries, and other support and training facilities.
This is good news for defense contractor Lockheed Martin, which will act as the primary contractor of the missile defense system. This is the system designed to destroy short- and intermediate-range ballistic missiles, even outside the Earth's atmosphere.
What's the deal?
The deal marks the first foreign sale of the THAAD system. It has a five-year contract period through mid-2016. UAE has placed an order for two THAAD systems, which includes the production of interceptors, launchers, radars, fire control equipment, and support equipment. Interceptors are a centerpiece of regional defense, which the U.S. wants to deploy in the Middle East.
The entire system will not be produced by the company itself. This brings more business to Raytheon (NYSE: RTN), which will provide radars and other facilities for $582.5 million.
The radars search, detect, track, and differentiate threats from nonthreats. They then deliver this data to THAAD's fire control and communications element. Raytheon will join forces with Lockheed for the development of areas such as engineering, communication software, testing support, and fire control shelter.
Other companies will work with Lockheed on the THAAD project. Honeywell will make the missile's mission computer; Aerojet will manufacture the rocket motor, and U.K.'s BAE Systems will produce the missile seeker.
The Foolish bottom line
The THAAD deal is yet another feather in Lockheed's contract cap, which will significantly benefit UAE's air and missile defense capabilities. The company is strategically improving its contract portfolio and thus looks well positioned for a bright future. To stay updated on Lockheed Martin, click here and add it to your watchlist. It's free!
