A protest results in a stop work order from the company’s largest client.
On a generally good Monday for the stock market, AeroVironment (AVAV -9.68%) was a notable exception. The specialized defense company saw its share price sink by almost 10% that day, due to a work stoppage on a very lucrative arrangement between the company and the U.S. government. By contrast, the S&P 500 index, largely free of such burdens, inched 0.1% higher on the day.
Drone dispute
AeroVironment, which focuses on developing and manufacturing combat drones such as the popular Switchblade, disclosed in a regulatory filing that a protest has been filed with the U.S. government against the Army’s current Switchblade contract with the company. As a result of this action, the Army issued a stop work order on the contract.
The protest, filed with the federal Government Accountability Office (GAO), is currently being considered by that organization. The company expects the GAO to render a decision on the matter by Dec. 16.
At the end of August, the Army awarded an indefinite-delivery, indefinite-quantity contract for Switchblade systems to AeroVironment. The contract, the completion date for which is Aug. 26, 2029, has a ceiling value of $990 million.
The company took pains to add that the Army stop work order has no impact on its other business.
Hoping the stoppage will stop
The reasoning for the protest is not yet apparent. As the contract was concluded on a sole-source basis — i.e., it’s been determined that AeroVironment is the only entity capable of satisfying its requirements — the protesting party could feel another defense contractor (or contractors) is able to perform the work.
Regardless, this is at least a hiccup in a highly critical, and very lucrative, deal for AeroVironment. Hopefully for the company and its shareholders, it’ll soon be resolved in their favor.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
