The Australian affiliate of
Northrop Grumman Corporation
) - Northrop Grumman Australia Pty Limited - announced plans to
acquire the defense unit of Australia's Qantas Airways Limited.
The parties did not disclose the terms of the transaction.
The acquisition of Qantas Defence Services Pty Limited or QDS -
scheduled to close by next year - is subject to customary closing
QDS has a long standing relationship with the Australian
government and defense units with its integrated logistics,
sustainment and modernization support. With 300 and more
employees working throughout Australia this unit provides support
to the Australian Air Force's tanker-refueling fleet, logistics
services to the government's VIP aircraft and Navy patrol
Importantly, QDS recently received an Indonesian contract to
Lockheed Martin Corp.
) C-130H military aircraft. These transport planes were
previously operated by the Royal Australian Air Force.
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The QDS acquisition is expected to play an important role in
Northrop Grumman's international growth in its specialized areas
of unmanned, C4ISR, cyber, and logistics and modernization. This
major defense contractor is currently lagging behind its U.S.
rivals in terms of international contract wins. 10% of Northrop
Grumman's 2012 revenues were from overseas military customers,
much lower than its peers.
Given the current budget sequestration in the U.S., the latest
deal marks Northrop Grumman's attempt to tap into the
faster-growing international defense markets of Asia and
Last month, the company posted strong second quarter 2013 results
on the back of a lower share count and a strong operating
performance. Revenue and earnings growth continued to be driven
by its strong presence in the current focus areas of cyber
security, modernization of defense and homeland security assets,
intelligence, surveillance and reconnaissance systems, advanced
electronics and software development.
The company has conceded that though the budget environment is
unpredictable, it will continue to focus on aligning its
portfolio with the priority areas of investment for global
security. Again, while the company's Global Hawk program is
maturing, it continues to progress well on other unmanned
programs, such as Alliance Ground Surveillance and Fire Scout
The positives are well reflected in the company's bullish Zacks
Rank #2 (Buy). Other well-placed stocks in the space include
Alliant Techsystems Inc.
Huntington Ingalls Industries, Inc.
). While Alliant Techsystems carries a Zacks Rank #1 (Strong
Buy), Huntington Ingalls holds a Zacks Rank #2 (Buy).