Why the Orbital (ASX:OEC) share price ended the day up 6%

The Orbital Corporation Ltd (ASX: OEC) share price flew almost 7% higher in afternoon trade following a new agreement. Here’s the details.

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The Orbital Corporation Ltd (ASX: OEC) share price flew higher in late-afternoon trade following the announcement of a new agreement. At the end of today’s market session, the advanced aerospace manufacturer’s shares finished at 93.5 cents, up 6.8%.

What’s lifted the Orbital share price?

Investors were picking up the Orbital share price throughout the day after announcing a lucrative deal.

According to its release, Orbital advised it has signed an engine development and supply agreement with Textron subsidiary, Lycoming Engines.

Under the framework, Orbital will engage in a 12-month engine development program to integrate its technology into Textron Systems’ Aerosonde platform. This will see Orbital’s use the design of its unmanned aerial vehicle (UAV) core engine, including its patented fuel and engine control systems.

Textron subsidiary, Textron Systems is a leading international firm specialising in unmanned aircraft systems. The company is one of the largest suppliers of tactical UAVs to the United Stated military.

Once all checkpoints have been successfully met, the agreement will transition into a supply contract. Orbital will deliver the newly-integrated engines along with spare parts and support services to Lycoming over a minimum 5-year period. At the end of the contract, Lycoming has the option to renew the deal for an additional five one-year extensions. Delivery of the production engines is expected to be no earlier than the fourth quarter of FY22.

Orbital noted that its revenue guidance for the current financial year remains the same, between $30 million to $40 million. However, future revenue guidance cannot be determined until the successful completion of the engine development program, and known scheduling engine deliveries.

What did management say?

Orbital UAV CEO and managing director Todd Alder commented:

We are delighted to announce this major new collaboration with Lycoming and to be working with Textron Systems on a joint development program.

This relationship further enhances our status within the global UAV defence industry and provides the opportunity to increase our market share and deliver on our strategic growth objectives

Textron Systems, senior vice president of air systems Wayne Prender went on to add:

For more than four decades, Textron Systems has been designing, manufacturing, operating and supporting some of the world’s most reliable and trusted multi-mission unmanned aircraft, including the Aerosonde and Shadow systems.

Orbital UAV’s heavy fuel technology and design expertise coupled with Lycoming Engines’ World Class reputation further supports Textron Systems’ industry-leading UAV mission readiness rates and reputation for reliability and durability.

The Orbital share price has gained over 100% in the past 12 months, but has fallen 20% year-to-date.

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Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Orbital Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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