May 13, 2011 / 4:51 PM / 8 years ago

UPDATE 1-BAE Systems wins big US Army ammo plant contract

* Ousts incumbent ATK to run Radford plant in Virginia

* BAE says eyes US government OK to export to allies

* ATK says looks forward to government debriefing (Adds comments by BAE executive, stock movement)

By Andrea Shalal-Esa and Jim Wolf

WASHINGTON, May 13 (Reuters) - Britain’s BAE Systems Plc (BAES.L) said on Friday it had won an initial 10-year, $850 million contract to run the U.S. Army’s Radford ammunition plant in Virginia, the only domestic producer of a key material used in explosives and propellants.

BAE bested incumbent Alliant Techsystems Inc ATK.N for the deal that includes three 5-year options that could stretch through 2036 and add significant new revenue, the company said.

Radford Army Ammunition Plant is a 6,900-acre government-owned, contractor-operated facility established in 1941 that produces rocket and gun propellants. It is the sole U.S. producer of nitrocellulose, the feedstock for ammunition used by the military, police officers, hunters and other recreational shooters.

Alliant Techsystems, also known as ATK, had operated the plant since 1995, when it completed the acquisition of Hercules Powder Co, which built the plant to meet World War Two military ammunition requirements.

ATK looks forward to “a debriefing from our government partners on this outcome,” said Bryce Hallowell, a company spokesman. The handover is due to take place after a six-month transition period.

J.P. Morgan North America Equity Research cut its earnings per share estimate for ATK by about 15 cents on an annualized basis after the announcement. Radford was contributing about 5 percent of company-wide sales, or about $240 million, it said.

The Radford loss also “heightened concerns” about ATK’s ability to hang on to a far larger contract to manage the Army ammunition plant at Lake City, Missouri, which is up for grabs in 2013, a note to investors said.

RBC Capital Markets recommended buying ATK on weakness Friday, saying ATK shares already had been trading at an 11 percent discount to arms makers overall.

BAE Systems shares were up 1.4 percent Friday at 339.7 pence in late trading on the London Stock Exchange. ATK shares were down 5.1 percent at $72.13 on the New York Stock Exchange.

The Radford facility sits on two sites straddling Virginia’s New River and employs more than 850 people. BAE already operates the U.S. Army’s Holston ammunition plant in Kingsport, Tennessee, under an Army contract awarded in 1998 that runs through 2023.

The ousting of ATK comes at an important time for BAE, which said last month that it was laying off 600 workers at its Sealy, Texas, plant after losing a big Army truck contract.

BAE executives said in a teleconference that they would seek U.S. permission for possible exports to allies worldwide from the Radford plant.

“That is one of the major things that we want to address within the U.S. government ... as we start expanding business operations at Radford,” said Jerry Hammonds, a BAE vice president for ordnance systems.

He said BAE also planned to expand commercial applications of the plant’s production such as sports ammunition even as it moves to consolidate and modernize operations, shrink the plant’s footprint and cut idle facility costs.

BAE is a major subcontractor to Lockheed Martin Corp (LMT.N) on the projected $382 billion F-35 fighter program, the Pentagon’s costliest arms program.

Facing tighter budgets for new weapons in Europe and the United States, the company has focused in recent years on the lucrative U.S. military market, including the maintenance, modernization and repair of Navy ships. (Reporting by Andrea Shalal-Esa and Jim Wolf; Editing by Muralikumar Anantharaman and Matthew Lewis)

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