Department of Defense ("DoD") has made a proposal to Congress
for the sale of
Northrop Grumman Corporation
) Global Hawk surveillance drones to the government of South
Korea under the foreign military sale ("FMS") program. The deal
is expected to be $1.2 billion.
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If the request is approved by the Congress, then Northrop will
sell four RQ-4 Block 30 (I) Global Hawk spy drones. Per the deal,
Northrop would also supply associated equipment, parts, training
and logistical support, which would include infrared and
electro-optical sensors, imagery analysis systems and moving
target indicators on board the Global Hawk Block-30 unmanned
These drones have been used by the U.S. Air Force in Afghanistan
and Iraq. The deal would be the first order in the Asia- Pacific
region for the high-altitude surveillance drones. Despite
being interested in buying the aircraft, Australia has not yet
placed an order for the same.
In the defense budget proposal for 2013, DoD had proposed to
cancel the Block-30 version of the Global Hawk drone. Instead, it
was looking for the purchase of more advanced Block-40 model.
However, Congress opposed to the proposal and declared in the
defense authorization bill that Air Force is not allowed to
retire the Block-30 drones at least until the end of 2014.
Apart from Northrop's proposal, DoD had also requested for the
) 117 AIM-9X Sidewinder missiles worth $140 million to Turkey, a
foreign military sale of satellite ground stations worth $125
L-3 Communications Holdings Inc.
) to Iraq, and a $406 million sale of artillery rockets by
Lockheed Martin Corporation
) to Qatar.
All these requests are just a notification for potential
purchases. They will be firm orders only when approved by the
Congress and the countries sign contracts with the DoD.
Based in Falls Church, Virginia, Northrop Grumman Corporation
supplies a broad array of products and services to the U.S. DoD,
including electronic systems, information technology, aircraft,
space technology, and systems integration services.
Northrop has a strong presence in Air Force, Space & Cyber
Security programs. Northrop's product line is well positioned in
high priority categories, such as defense electronics, unmanned
aircraft and missile defense.
Revenue and earnings growth continue 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. Moreover, this contract
would enhance the company's position.
However, these positives are offset by apprehension regarding
defense cutbacks on high-cost platform programs, over-exposure to
the DoD budget, lower backlog, cost over-runs and reductions in
the Afghanistan and Iraq operations. The company presently
retains a short-term Zacks #3 Rank (Hold) that corresponds with
our long-term Neutral recommendation on the stock.