L-3 Communications Holdings Inc.
) announced that its Link Simulation & Training or L-3 Link
division has been awarded a contract from the U.S. Air Force Life
Cycle Management Center at Wright-Patterson Air Force Base near
Dayton, Ohio, to build two F-16 Block 52 Full Mission Trainers or
FMTs for the Iraqi Air Force.
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The F-16 Block 52 FMTs, being built at L-3's Arlington, Texas
facility, will incorporate the company's HD World integrated
simulation product line. High-definition databases, image
generators, SimuSphere HD-9 visual displays and physics-based
processing technology will produce highly realistic and relevant
fighter training environments within a geo-specific visual system
database of Iraq.
The FMTs will incorporate L-3's simulated Joint Helmet Mounted
Cueing System, enabling pilots to view flight information at all
times while conducting a flight. This simulation capability will
allow pilots to practice control of aircraft targeting systems
L-3 Communications is the leading provider of F-16 simulators
worldwide. Since the 1970s, the company has delivered over 140
F-16 training devices in support of the U.S. Air Force, Air
National Guard and international militaries.
L-3 Communications Holdings operates through its wholly owned
subsidiary, L-3 Communications Corporation. L-3 Communications is
a leading supplier of a broad range of products and services used
on a number of aerospace and defense platforms. In addition, the
company is a prime system contractor for aircraft modernization
and maintenance; simulation and training; and government systems
We believe that L-3 Communications over the longer run is one of
the best-positioned pure defense players based on its
non-platform focus, prominent position as sub-contractor/supplier
to other defense primes, broad diversification of programs and
strong order bookings. Its strong balance sheet also provides
financial flexibility to increase its dividend, indulge in share
repurchases and earnings accretive acquisitions.
We believe future growth will come from its strong presence in
the areas it currently focuses on. These include command,
control, communications, intelligence, surveillance and
reconnaissance (C3ISR) equipment; precision-guided weapons;
unmanned aerial vehicles (UAVs); and other electro-mechanical
robotic capabilities, networked information technologies, special
operations forces, platform upgrades and counterterrorism
On the flip side, however, a substantial portion of L-3
Communications' business is generated within the U.S, with
government and commercial sales accounting for more than 80% of
total sales. Budget deficits and political uncertainty loom large
on future defense budgets with high chances of shrinkage.
Moreover, more than half of L-3 Communications' sales come from
fixed priced contracts. Consequently, the company will only be
able to make a profit if costs stay within the set limits. Given
these headwinds, we maintain our Neutral stance on L-3
Communications. The company now has a Zacks Rank #3 (Hold).
We presently prefer other operators in the aerospace and defense
Huntington Ingalls Industries Inc.
Lockheed Martin Corporation
The Boeing Company
), all carrying a Zacks Rank #2 (Buy).