Why L-3’s Aerospace Systems Saw a Decline in 2014



Segment overview

According to L-3, products within its Aerospace Systems segment “Specialize in highly customized design, integration and certification of mission subsystems and designing interiors for VIP aircraft. They also deliver solutions for the global ISR market and provide modernization, upgrade, sustainment, and logistics support for a wide variety of aircraft and ground systems for military, government and commercial customers.”

L-3 competes with other Aerospace companies like Honeywell International (HON), Lockheed Martin (LMT), and Rockwell Collins (COL). These companies have a 2.91%, 2.04%, and 0.40% holding, respectively, in the Vanguard Industrials ETF (VIS).

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Performance review

L-3’s Aerospace Systems segment was hit the hardest due to the defense budget cuts. The segment saw its revenues grow 1% year-over-year during the fourth quarter of 2014, but it declined 5% year-over-year for the full year 2014. During the fourth quarter 4Q14, out of the $13 million growth, platform and logistics accounted for $8 million of the sales growth while the remaining $5 million came from ISR Systems. The segment’s operating income was up 2% year-over-year.

The key wins during the quarter include support special mission aircraft operating out of Vance Air Force Base, upgrading the communication systems on the C-32 and C-40 aircraft for the DOD, and a five-year program for supporting a data link upgrade initiative for the C-37 aircraft.

On the international front, the company received continued funding for upgrading Argentina’s C-130 fleet. On the UK Air Seeker program, L-3 expects to deliver the second aircraft, out of the three orders received on budget and before schedule. Such wins make for a stronger pipeline that will likely help the company increase its business space in the segment.

The new orders along with solid performance in its ISR and SPYDR platforms will strengthen the company’s Aerospace Systems portfolio.


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