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Northrop Wins U.S. Air Force Global Hawk Contract of $3.2B

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Defense contractor Northrop Grumman CorporationNOC has won an indefinite-delivery/indefinite-quantity ("IDIQ") contract from the U.S. Air Force for the Global Hawk unmanned surveillance plane, worth $3.2 billion.

Per the contract, Northrop will provide continuous development, modernization and maintenance services for all variants of the aircraft in the U.S. Air Force's fleet. The company will be responsible for management services in program, business and technical areas; engineering efforts such as configuration management; data management, reliability, availability and maintainability; and other areas.

Ordering period of the contract will run through Sep 30, 2020. Contract work will be carried out in San Diego, CA and is expected to be over by Sep 30, 2025.

The main contracting activity is Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH. Orders against this contract can also be placed by Air Force Life Cycle Management Center, Robins Air Force Base, GA.

Northrop manufactures a number of variants of the high-altitude surveillance drone for the Air Force and a maritime surveillance version for the Navy.

Due to the higher costs of maintaining two high-altitude surveillance aircraft, the Air Force plans to upgrade the Global Hawk before the retirement of Lockheed Martin Corp.'s LMT aging fleet of manned U-2 spy planes. One of the main reasons behind choosing Global Hawk was the sharp declines in its operating costs.

Global Hawk is an unmanned aircraft intelligence, surveillance and reconnaissance ("ISR") system capable of flying high altitudes for long hours. It gained popularity mainly on its ability to transform itself into an operational weapons system as and when required. It was not only used by the Air Force for maintaining overseas surveillance after the 9/11 terrorist attacks, but has also been used extensively by the National Aeronautics and Space Administration for scientific research missions.

With rising security threats, the U.S. government has realized the need for ISR technologies and has thus shifted its emphasis to high-tech intelligence equipment. The FY16 defense budget proposed by the Obama administration put due emphasis on ISR. Moreover, the Obama administration unveiled a new policy for the export of U.S. military drones. Northrop continues to see growth in its unmanned and space businesses. In the first half of 2015, the company's unmanned sales were up over 10%, while space sales increased around 5% year over year.

Zacks Rank

Northrop currently has a Zacks Rank #2 (Buy). Other favorably placed stocks in the aerospace and defense sector include Leidos Holdings, Inc. LDOS and Engility Holdings, Inc. EGL . While Leidos sports a Zacks Rank #1 (Strong Buy), Engility Holdings carries the same rank as Northrop.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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