RTX Secures a $302M Contract to Support F135 Propulsion Systems

RTX Corp. RTX recently secured a modification contract involving the F135 propulsion system. The award has been provided by the Naval Air Systems Command (NAVAIR), Patuxent River, MD.

Details of the Deal

Valued at $301.8 million, the contract is expected to be completed by June 2027. Per the terms of the deal, RTX will procure long-lead time materials as well as the manufacture, assembly, inspection, acceptance and delivery of 108 conventional takeoff and landing F135 propulsion systems. It will also procure 27 short takeoff and vertical landing F135 propulsion systems, and 13 Carrier Variant F135 propulsion systems.

RTX will also help meet the global requirement for spare engines, power modules and other hardware. The contract will serve the U.S. Navy, Air Force, Marine Corp, non-U.S. Department of Defense (DOD) participants and Foreign Military Sales (FMS) customers.

Work related to this deal will be carried out in various locations across the United States as well as outside the continental U.S.

What’s Favoring RTX?

Amid the geopolitical tensions prevalent across the globe, nations are rapidly augmenting defense purchases to strengthen their warfare capabilities. This has led to an increased demand for fighter jets, which form an integral part of a country’s defense products.

In this context, it is imperative to mention that F-35 jets, built by America’s largest defense contractor, Lockheed Martin LMT, enjoy a lucrative position in the combat aircraft arena.

The soaring demand for Lockheed’s F-35 aircraft can be gauged from the fact that the Czech Republic became the 18th nation to join the F-35 global team during the first quarter of 2024, making its intent to procure 24 F-35s quite obvious. In addition, the U.S. State Department approved a potential foreign military sale to Greece for up to 40 F-35 jets. Moreover, Singapore announced its intent to purchase eight F-35A jets.

Consequently, RTX, being the manufacturer of the F-35 jets’ engine, F135, witnesses a steady flow of orders from the U.S. Army, along with a handful of international partner countries as well as FMS customers. The latest contract win is a bright example of that.

Looking ahead, the production of F-35 jets is expected to continue for several years, given the U.S. government's current inventory target of 2,456 aircraft for the Air Force, Marine Corps and Navy.

Consequently, we may expect Pratt & Whitney, which builds F-135, to witness more order inflows for the F-35 engine and its propulsion system in the coming days, like the latest one. This should significantly bolster RTX’s top line.

Peer Growth

Apart from Lockheed and RTX, defense majors that stand to benefit from the expanding production rates of F-35 have been discussed below.

Northrop Grumman NOC: The company renders its expertise in carrier aircraft and low-observable stealth technology for the F-35 program. Northrop is part of the international partnership involved in building three variants of the F-35 jet. It is engaged in the design and production of the AN/ASQ-242 Communications, Navigation and Identification avionics suite, which can be dynamically programmed to arm the F-35 pilot with multiple-mission capabilities, engineered for seamless transition from one mission phase to the next.

Northrop boasts a (three-to-five years) long-term earnings growth rate of 8.7%. The consensus estimate for NOC’s 2024 sales implies an improvement of 4.6% from the 2023 reported figure.

BAE Systems BAESY: This defense major’s short takeoff and vertical landing experience, along with air systems sustainment, supports F-35’s combat capabilities. The company provides an electronic warfare suite for F-35 that includes fully integrated radar warning (targeting support and self-protection) to detect and defeat surface and airborne threats.

BAE Systems boasts a long-term earnings growth rate of 12.2%. The Zacks Consensus Estimate for BAESY’s 2024 sales implies an improvement of 34.1% from the 2023 reported figure.

Price Performance

In the past year, shares of RTX have rallied 15.4% against the industry’s 8.5% decline.

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Zacks Rank

RTX currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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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.

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