(NOC) Northrop Grumman Corporation Assists BAE Systems in Key Deal

Northrop Grumman Corporation (NOC) and BAE Systems Inc. have entered into an exclusive strategic partnership to replace the aging T-38 trainer for the U.S. Air Force’s “T-X” program. The T-38 trainer is planned to be replaced by BAE Systems’ Hawk Advanced Jet Training System (“AJTS”).

BAE Systems will serve as the primary partner in this program. However, Northrop Grumman will act as the manufacturing partner for the new Hawk aircraft. Overall, the team will apply its expertise that will help the U.S. Air Force to succeed in every possible way in their critical missions.

Hawk AJTS is uniquely manufactured to meet the needs of the U.S. Air Force. It effectively integrates live and synthetic air and ground based elements to successfully train pilots for 5th generation fighters such as the F-35 Lightning II and the F-22 Raptor.

Currently, being the only fully-integrated off-the-shelf system, Hawk AJTS trains the U.S. Air Force combat pilots. This proven, low-cost, low-risk 5th generation training system teaches the trainees the way to address the critical flow of information, master the technique to interpret information correctly and take astute decisions to maintain operational advantage.

The System boasts of three critical components that help deliver cost-effective training. These include a flexible, adaptable Enterprise Learning Architecture (“ELA”), a Ground Based Training System (“GBTS”) that delivers the right skills through a blended live/virtual environment, and a proven, cost-effective aircraft that can adapt, evolve and provide the live element of training to meet end-user requirements.

The Hawk is the future lead-in trainer for the F-35 for the U.S. Navy and U.S. Marine Corps, besides the armed forces of the UK, Canada, and Australia. Currently, more than 900 Hawk aircraft have been sold or are on order. With 18 customers worldwide, the Hawk aircraft has active production lines around the world.

BAE Systems is a global defense and security company that delivers a full range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology solutions and support services.

Northrop Grumman has a strong presence in Air Force, Space & Cyber Security programs. With the successful spin-off of its shipbuilding subsidiary, now Huntington Ingalls Industries (HII), in March 2011, Northrop Grumman’s revenue base is heavily skewed towards programs with a short business cycle. Moreover, it offers a strong program portfolio positioned to take advantage of focus areas in the defense space, an improving balance sheet and an ongoing share repurchase program.

However, the 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 Afghanistan and Iraq operations. Thus, over the near term, we do not find any near-term catalyst for the company and expect the company to perform in line with the broader market. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.

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