Lockheed Martin Corp. (LMT:US) is expected to receive a military satellite contract from the U.S. Air Force by Dec. 31 that may be valued at almost $2.6 billion, according to the service and the company.
The contract would cover the purchase of two space vehicles, the final installment in a six-satellite constellation of the Advanced Extremely High Frequency communications program.
The contract would be a fixed-price incentive type, requiring Lockheed Martin, the world’s largest defense contractor, to share the cost of overruns or material failures. Contracts for the previous four satellites were cost-plus types that required the Air Force to foot the entire bill.
The contract’s final value is under negotiation and won’t be known until completion, which is expected by year-end, Air Force spokesman Captain Nick Plante said in an e-mailed statement.
“We’re in discussions right now,” Lockheed Martin Chief Operating Officer Marillyn Hewson said in a Dec. 14 interview. “It is an important contract, an important capability that we are providing,” she said.
Lockheed Martin rose 1.6 percent to $90.42 at the close in New York trading and has climbed 12 percent this year.
The Advanced EHF satellite program is aimed at creating a constellation of satellites capable of withstanding shocks from a nuclear attack to allow secure communications among top commanders, including the president.
It also would provide transmission of tactical communications, such as real-time video, battlefield maps and targeting data. Two of the six are in orbit.
The fiscal 2012 defense authorization bill directs that the contract shouldn’t exceed $3 billion. Northrop Grumman Corp. (NOC:US) is the primary subcontractor.
Lockheed Martin has already received about $489 million in advance payments to start buying and making hard-to-get parts, according to Air Force figures.
“As we transition from development to production, technical and schedule risks are better understood, making it appropriate to shift transition from a cost-plus to a fixed- price contract,” Michael Friedman, a spokesman for Bethesda, Maryland-based Lockheed Martin said in an e-mailed statement.
The contract type “allows the government to limit its risk while also targeting cost reductions,” he said.
General William Shelton, head of the Air Force Space Command, said in written remarks this year to the House Armed Services Committee that buying the fifth and sixth satellites separately would cost as much as $1.95 billion each. Bought together, the price would be $1.55 billion apiece, for a savings of about $800 million, he said.
“We are targeting a significant cost reduction” compared with the previous satellites, Friedman said.
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