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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  BAE Systems    BA.   GB0002634946

BAE SYSTEMS

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Pentagon cuts cost of F-35 fighters by 4 percent: sources

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12/12/2012 | 09:39pm EDT

WASHINGTON (Reuters) - The Pentagon will pay about 4 percent less for each new Lockheed Martin Corp (>> Lockheed Martin Corporation) F-35A fighter jet when it signs a deal worth $3.8 billion with the No. 1 U.S. defense contractor on Friday, according to sources familiar with the deal.

WASHINGTON (Reuters) - The Pentagon will pay about 4 percent less for each new Lockheed Martin Corp (>> Lockheed Martin Corporation) F-35A fighter jet when it signs a deal worth $3.8 billion with the No. 1 U.S. defense contractor on Friday, according to sources familiar with the deal.

Each of the 22 conventional takeoff and landing jets in the fifth production contract will cost around $107 million, excluding the engine, said the sources, who were not authorized to speak publicly.

That compares to a price of $111.6 million for the F-35As to be used by the Air Force that were included in the fourth contract with Lockheed.

The contract for 32 jets also includes 3 B-models for the U.S. Marine Corps, which can land vertically, and seven C-models to be used on aircraft carriers for the U.S. Navy.

The Defense Department is negotiating a separate contract with Pratt & Whitney, a unit of United Technologies Corp (>> United Technologies Corporation), for the engines that will power the new warplanes. Pentagon officials hope to conclude that deal by year end.

A senior defense official said the Pentagon plans to sign the deal with Lockheed on Friday, a long-awaited agreement that moves forward the most costly weapons program in U.S. history and should make future negotiations easier.

The deal gives Lockheed a 12-percent profit margin, according to Loren Thompson, a defense consultant with close ties to the company.

Lockheed shares closed 19 cents or 0.21 percent lower at $91.81 on the New York Stock Exchange on Wednesday.

The government also expects to reach an agreement soon with Lockheed on early funding for a sixth group of F-35s, a step that could help reduce a potential $1.1 billion liability the weapons maker faced from work it had already done on the jets without a signed contract, the official said.

The final amount of the contract will be determined on Friday, since it must factor in the exchange rate of the British pound, said the official, who spoke on condition of anonymity.

The Pentagon announced on November 30 that it had reached an agreement in principle with Lockheed on the fifth production contract after a year of arduous negotiations, saying it aimed to finalize terms by the end of the year.

The contract will also pay for manufacturing support equipment, instrumentation for flight testing and other mission equipment needed for the new radar-evading warplanes.

Signing the contract before year-end will safeguard funds for the F-35 from $52.3 billion in automatic budget cuts due to kick in on January 2 for fiscal 2013 unless Congress acts.

It also will allow Lockheed and its suppliers on the program -- Northrop Grumman Corp (>> Northrop Grumman Corporation) and Britain's BAE Systems Plc (>> BAE Systems plc) -- to log additional orders in their 2012 results.

Thompson said the new unit cost of the A-models included $95 million in the actual cost of the planes, a 12 percent profit margin for Lockheed, plus some funds for retrofits to address problems discovered during testing, which is ongoing.

"This represents a moderate reduction in the cost of each plane," he said.

Lockheed officials had said last month that the company expected to reduce labor costs by 14 percent from the actual costs of the fourth lot.

Separately, Canada -- one of the eight international partners helping to develop the new plane -- on Wednesday scrapped a controversial plan to buy 65 F-35 jets from Lockheed, saying that it would evaluate all available options for acquiring new fighter jets.

The Conservative government said an independent panel would look at possible replacements for the country's aging fleet of CF-18 fighters, but could still buy the F-35 if it turns out to be the best option.

Pentagon spokeswoman Lieutenant Colonel Melinda Morgan said Canada remained a partner in the F-35 program. She said the review Canada was now undertaking was similar to one run by the United States in 2010, which found no alternative fighter that could provide the necessary capability at lower cost.

"We look forward to working with our Canadian Partners, along with the other partner nations, to drive to affordable acquisition of the F-35," Morgan said.

Canada's decision to launch a new competition is not expected to have much short-term impact on the F-35 program since Canada was only slated to start buying jets in several years.

(Reporting by Andrea Shalal-Esa in Washington and David Ljunggren in Ottawa; Editing by Jeffrey Benkoe, David Gregorio and M.D. Golan)

By Andrea Shalal-Esa

Stocks mentioned in the article
ChangeLast1st jan.
BAE SYSTEMS -0.14% 484.3 Delayed Quote.5.62%
LOCKHEED MARTIN CORPORATION -0.21% 295.98 Delayed Quote.13.28%
NORTHROP GRUMMAN CORPORATION -0.20% 270.46 Delayed Quote.10.66%
UNITED TECHNOLOGIES CORPORATION -0.95% 125.31 Delayed Quote.18.81%
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Financials (GBP)
Sales 2019 19 434 M
EBIT 2019 1 992 M
Net income 2019 1 204 M
Debt 2019 666 M
Yield 2019 4,76%
P/E ratio 2019 12,60
P/E ratio 2020 11,89
EV / Sales 2019 0,83x
EV / Sales 2020 0,79x
Capitalization 15 503 M
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Mean consensus OUTPERFORM
Number of Analysts 20
Average target price 6,00  GBP
Spread / Average Target 24%
EPS Revisions
Managers
NameTitle
Charles Nicolas Woodburn Chief Executive Officer & Director
Roger M. Carr Chairman
Peter John Lynas Executive Director & Group Finance Director
Nigel Whitehead Chief Technology Officer
Steve N. Millward Chief Information Officer
Sector and Competitors
1st jan.Capitalization (M$)
BAE SYSTEMS5.62%20 548
UNITED TECHNOLOGIES CORPORATION18.81%109 020
LOCKHEED MARTIN CORPORATION13.28%83 881
RAYTHEON17.49%50 851
GENERAL DYNAMICS8.59%49 208
NORTHROP GRUMMAN CORPORATION10.66%46 001