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ATK beats BAE for U.S. military’s biggest contract in October

By Brendan McGarry,

Alliant Techsystems, the world’s largest ammunition maker, fended off BAE Systems to win the U.S. military’s biggest contract last month.

The $8.48 billion deal to upgrade and operate an Army ammunition factory in Missouri topped a list of more than 310 awards with a combined potential value of $37.4 billion announced by the Defense Department in October.

The month’s total fell 17 percent from the $44.9 billion in awards disclosed in September, the last month of the government’s fiscal year and traditionally the busiest time of the year for procurement. The contract, Alliant’s largest, was a victory for the company after BAE wrested from its control a munitions facility in Virginia.

“We’re very pleased with the outcome,’’ Chief Executive Mark DeYoung said during a conference call with analysts following the release of the company’s second-quarter financial results. The award was one of the “key strategic contract wins’’ of the period, he said in a statement the same day.

Ammunition sales helped the Arlington-based company, known as ATK, post a profit in the quarter that beat analysts’ expectations. The company also increased its revenue forecast for fiscal 2013. The shares have risen 2.9 percent so far this year.

London-based BAE, McLean-based SAIC and Lockheed Martin of Bethesda were among a dozen companies that won the Pentagon’s second-largest contract last month. The five-year award from the Army for software and engineering services is valued at as much as $7 billion. The companies beat out three other bidders that weren’t identified.

Lockheed, the world’s largest defense contractor, also won the third-largest October contract, an $890 million award from the Air Force for 13 cargo aircraft.

The ATK award allows the company to run the Lake City Ammunition Plant in Independence, Mo., for as long as a decade.

The facility is the Defense Department’s largest producer of small-arms ammunition, according to Stephen Abney, an Army spokesman. It makes as many as 1.6 billion rounds a year for weapons such as the M-4 carbine and .50-caliber machine gun, Abney said in an e-mail.

ATK received 15 percent of its $4.61 billion in revenue in fiscal 2012 — the year ended March 31 — from the contract, or about $692 million, spokeswoman Amanda Covington said in an e-mail. The new agreement takes effect October 2013.

The U.S. military’s demand for ammunition is expected to decline with the drawdown of troops in Afghanistan.

The company has said most of its small-caliber ammunition is used in military training and isn’t dependent on wartime conditions, Terrence Dwyer, an analyst at KDP Investment Advisors, wrote in a Nov. 1 note to clients. Still, the Lake City factory “will likely see some falloff in production’’ in fiscal 2013, he wrote.

DeYoung, the CEO, didn’t say how the troop withdrawal from Afghanistan or the budget standoff in Washington will impact orders.

“Based upon the budget environment, or other decisions, we’ll wait and see what kind of volumes are actually ordered on the contract,’’ he said.

BAE has been targeting ATK’s ammunition revenue. The military in January awarded BAE a contract to operate the Radford Army Ammunition Plant in Virginia. ATK had held the contract, valued at as much as $850 million for 10 years, since 1995.

BAE formed a joint venture with Olin Corp.’s Winchester Ammunition division to compete for the Lake City award, according to BAE spokesman Neil Franz.

Regardless of the loss, “we have a solid track record of partnering with the Army and delivering results,’’ Franz said. BAE began operating the Radford plant in July and has been running the Holston Army Ammunition Plant in Kingsport, Tenn., for 13 years, he said.

—Bloomberg Government

Nick Taborek in Washington contributed to this report.

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