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L3 Technologies Clinches Commercial Contracts Worth $115M


L3 Technologies, Inc.’s LLL Commercial Training Solutions (L3 CTS) business has clinched multiple contracts for providing commercial aviation training, resourcing and simulation solutions in 2017. The deals were awarded by global commercial operators and airline partners.

Details of the Deals

With a total value of more than $115 million, these contracts include delivery of airline pilot-training programs, airline pilot resourcing, mid-level and classroom devices, and the sale of eight full-flight simulators (FFS) year to date.

In particular, the deals incorporate L3 CTS’ integrated spectrum of training, resourcing and simulation solutions for the commercial aviation arena. These solutions include offering of Multi-crew Pilot License (MPL) and Airline Transport Pilot License (ATPL) cadet pilot programs for airline customers in Europe, the Middle East and the Asia-Pacific regions. It is also committed to enrolling over 100 MPL trainees into the airline academy in 2017.

The terms of the contracts also include Type Rating training agreements and dry simulator provision for airline customers for new Boeing 737 in the aforementioned regions.

Of the eight FFS, one each will be delivered to Air France and Chengdu Airlines in 2018, two to Sichuan Airlines in 2018 and 2019, two to Shenzhen Airlines in 2018 and two to All Nippon Airways in 2019. Moreover, classroom training solutions for North American customers are included in these contracts.

Our View

With steady improvement observed in passenger and freight traffic, demand for commercial planes have increased manifold in the last decade. Toward this end, last year, aerospace giant, The Boeing Company BA, anticipated the commercial fleet to double to 45,240 airplanes by the end of 2035, fueled by sustained 4.8% annual growth in commercial passenger traffic. As a result, global demand for qualified commercial pilots is also on the rise.

Apart from exploiting its legacy defense business that includes unmanned systems equipment and secure communication systems, L3 Technologies also holds a strong ground in the commercial aviation space. L3 CTS is one of the leading providers of intelligent total training solutions for pilots and maintainers across a wide range of commercial platforms. As Boeing has predicted, the sumptuous commercial fleet expansion will surely benefit commercial training solutions providers like L3 Technologies.

As a matter of fact, to make its foothold even stronger in this space, L3 Technologies acquired Aerosim last year to tap the unearthed potential of the emerging markets of Asia and the Middle East. It has been estimated that by 2017end, Aerosim will contribute about $50 million to the company’s top line, thereby providing positive accretion to its bottom line. We believe that the aforementioned contracts are partly results of this acquisition. More such deals, expected in the coming days, will definitely boost the company’s growth trajectory.

Price Performance

Shares of L3 Technologies have increased 16.4% over the last 12 months, underperforming the Zacks categorized Electronics-MilitarySystems industry’s gain of 17%. This could have been triggered by the weak performance the company has been witnessing in some of its product lines. The most worrying aspect of this is the downward trend in margins for service-related work due to competitive pressure. It also faces strong competition from its peers like Arotech Corp. ARTX and FLIR Systems, Inc. FLIR.

Zacks Rank

L3 Technologies currently carries 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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