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Raytheon (RTN) Secures $49M Air Force Contract for ADS-B


Raytheon Company RTN has won a contract from the U.S. Air Force (USAF) to equip the Automatic Dependent Surveillance – Broadcast (ADS-B) in T-38A/B and A-10 aircraft platforms. The ceiling value of the contract is $49 million and is awarded by the Air Force Life Cycle Management Center, Hill Air Force Base, UT.

Details of the Contract

Per the contract, Raytheon will provide the equipment to help USAF comply with the Federal Aviation Administration (FAA) Automatic Dependent Surveillance – Broadcast mandate.

Work is scheduled to be completed by May 16, 2023. Work will be carried out in Baltimore, MD; Largo, FL; and Indianapolis, IN. The contract will use fiscal 2017 research, development, test, and evaluation funds.

A Brief Note on ADS-B

ADS-B is a surveillance technology that helps an aircraft to track its position using satellite navigation and occasionally broadcast it. The information may be used by air traffic control ground stations as a replacement for secondary radar. Other aircraft can also use this information to provide situational awareness and allow self separation.

This is an automatic technology that doesn’t require any pilot or external input but depends on data from the aircraft's navigation system. ADS-B consists of two different services, "ADS-B Out" and "ADS-B In" that could replace radar as the primary surveillance method for controlling aircraft worldwide. In the U.S., ADS-B is an integral component of the Next Generation Air Transportation System (NextGen) national airspace strategy for upgrading and enhancing aviation infrastructure and operations.

The ADS-B market is projected to grow to $1,316.9 million by 2022 from $427.8 million in 2016, at a CAGR of 20.61%, during the forecast period. The major factor driving the growth of the ADS-B market will be the implementation of ADS-B in aircraft. Moreover, factors like modernization of air traffic management infrastructure and development of new airports globally are expected to propel its demand.

FAA directive needs aircraft operating in controlled U.S. airspace to be equipped with the ADS-B system by Jan. 1, 2020, as part of the agency’s NextGen initiative. Currently, this surveillance technology has been made compulsory in certain segments of Australian airspace. The equipment will be mandatory for some aircraft in Europe from this year. We note that Canada is already using ADS-B for quite limited air traffic control at present.

Why Raytheon?

Raytheon is one of the best-positioned companies among large-cap defense players due to its non-platform-centric focus. The company has been heavily investing in technological upgrades. Notably, its next-generation solutions will enable the company to support the U.S. Navy and international customers with advanced capabilities to counter emerging threats, going forward.

The company has been enjoying a steady stream of contracts from government establishments. Evidently, Raytheon won a modification contract worth $199.8 million from the U.S. Navy to procure 317 of the 17th Lot of AIM-9X Block II missiles – 107 for the Navy and 210 for the Air Force in April. Again, it won a contract from the U.S. Navy to provide engineering and technical services for Standard Missile, which will be used by the Navy, other government agencies and foreign military sales from fiscal 2017 through 2021.

Price Movement

Raytheon’s stock gained about 21% in the last twelve months, outperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 15.9%. This could be because rising demand from MENA or the Middle East and North Africa region, and growth in FMS contracts are driving the stock. The company also poses strong competition to its peers including Ducommun Incorporated DCO, Curtiss-Wright Corporation CW and Aerojet Rocketdyne Holdings, Inc. AJRD.

Zacks Rank

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

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