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DRS Technologies Lands Significant Defense Contracts
By James. H. Smith
October 17, 2005
In spite of an ongoing negative outlook for the US defense industry, as
again indicated by rating agency Standard and Poor's (S&P) mid-October
prognostication, New Jersey-based DRS Technologies has landed a flurry of
deals in October, with a potential overall value above US$830 million.
What is extraordinary about DRS is that the company had less than US$400
million in revenues five years ago. Also noteworthy is the company's planned
acquisition of St Louis-based Engineered Support System Inc (ESSI) in a deal
valued at about US$2 billion.
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DRS prevailed over a number of heavy hitter defense companies for the
acquisition. Those companies were said to include private equity firm
Carlyle Group, BAE Systems and General Dynamics. DRS Technologies provides
leading edge products and services to defense, government intelligence and
commercial customers. Focused on defense technology, DRS develops and
manufactures a broad range of mission critical systems.
However, the choice of DRS may well be borne out by the company's recent
activity. By far, the largest chunk of the company's latest business comes
from the US Marine Corps. DRS received US$46 million in initial funding to
produce thermal binocular system tactical range thermal imagers under a
competitively awarded, five-year contract valued at US$660 million,
including options, for the marines. The imagers are lightweight, hand-held,
battery-operated, infrared binoculars used by the military for long-range
observation and reconnaissance. This new program establishes DRS as a major
supplier of hand-held thermal imaging devices.
The indefinite delivery/indefinite quantity contract was awarded to DRS by
the US Marine Corps Systems Command (MARCORSYSCOM), Infantry Weapons Branch,
in Quantico, Virginia. For the initial award, DRS will deliver more than
3,800 systems. The company will produce in excess of 28,000 systems over the
life of the contract, if all options are exercised. Product deliveries are
expected to be completed by September 2010.
The company also announced that it had received a US$7.6 million contract to
produce and support launch control and power distribution subsystems for the
Lockheed Martin-developed MK 41 Vertical Launching System (VLS) on board the
US Navy's Arleigh Burke class guided-missile destroyers and Japanese
Maritime Self Defense Force DDH class ships.
The deal comes amid a note in S&P's report that investors may have good
reason to be concerned that the US Navy's budget for shipbuilding "may
stagnate for years to come". While that opinion may be bad news for Northrop
Grumman, the DRS deal -- although relatively small -- indicates that the
navy may continue to invest in activities other than shipbuilding.
The US Army -- in particular the Bradley program -- has also proved to be a
prime customer.
The day before the VLS announcement, the company said it had been awarded a
US$30 million contract to manufacture cable sets for the US Army's A3
Bradley Combat Systems. The Bradley continues to be an integral part of
military operations in Iraq.
The contract was awarded to DRS by BAE Systems, the prime contractor for the
development and production of the Bradley. That deal follows an early
October contract related to the Bradley, worth some US$22 million. DRS has
contracted to deliver new embedded diagnostics systems for installation on
M2A3 Bradley Fighting Vehicles.
Also for the Bradley, the company received a US$15 million contract to
provide the missile launch system on the tube-launched, optically-tracked,
wire-guided (TOW) weapons system for the M2A3. DRS also was awarded a
US$45.5 million contract to provide computer systems and peripheral
equipment to support army and Marine Corps operations in Iraq. DRS has not
confined its activities within the US.
As a first step in building a long-term relationship with the European
Aeronautic Defense and Space Co (EADS), the company has signed an agreement
to collaborate on US marketing and production of the EADS Hellas laser-based
obstacle warning system for helicopters, according to the European defense
company.
EADS, which has placed obstacle warning systems with the Federal German
Police and is developing another similar system, is looking for potential
sales to the US military, which has already ordered a system for further
testing and evaluation.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may
hold long or short positions in any of the stocks mentioned in this article
and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article. James
Smith is a freelance writer. Nothing in the articles should be construed as
an offer or solicitation or recommendation to buy or sell any specific
products or securities. Past performance does not guarantee future results.
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