The grant awarded will enable Orbital Corp to beef up its engine production lines at its Balcatta operations, as it prepares to serve a growing number of Defence customers.

Advanced engine manufacturer Orbital Corp (ASX:OEC) has been awarded additional funding via a Defence Global Competitiveness Grant, to the tune of around $195k.

The funds will support the company’s planned production expansion, as it steadily builds a global pipeline of tier-one global defence clients.

As part of the production bulk-up strategy, OEC will begin to commission additional engine production lines at its Balcatta operation in WA.

The grant awarded to OEC and five other defence industry suppliers was announced in the media on August 31, with Minister for Defence Industry Melissa Price saying that Aussie defence manufacturers had the capability to penetrate global markets.

“From acquiring new specialist components, to manufacturing engines for unmanned aerial vehicles, or making new static targets for international customers, these six small businesses are expanding into global markets, generating local jobs and strengthening the sovereign industrial base on which Defence relies,” said Price.

The grant awarded to OEC also coincided with a visit by the members of the Australian Army’s 13th Brigade to the company’s Balcatta facilities.

Headquartered at Irwin Barracks, Karrakatta 13th Brigade forms part of the 2nd Division of the Australian Army and plays an integral role in WA’s defence and security.

During the visit, the Army members reviewed Orbital’s growing capabilities as the company continues to prepare for increased production activity related to its unmanned aerial vehicle (UAV) engine manufacturing programs.

“It’s exciting to see the unique capability that Orbital has here in WA and explore opportunities to work together to deliver on state and nationwide strategic defence objectives,” said Brigadier Brett Chaloner CSC.


A growing pipeline of defence contracts

Orbital is currently manufacturing two UAV engines, with a further three engine production lines scheduled to enter operation over the next 12 months.

Last week, Orbital completed the delivery of the second engine to its major Singapore customer, after the first one was delivered in June.

The company will continue to work with the Singapore client on the implementation of Phase 3 of the program, which will see initiation of the first production run order.

With this growing pipeline, Orbital has established itself as a world leader in UAV engine design and manufacture, working with prime contractors not only within the Australian Defence Force supply chain, but also internationally.

Its rapid progress has caught the eye of the government, and during the year, the company has received grants to the value of $680k.

Following negotiations with the WA Government earlier this year, Orbital was also given the opportunity to offset the full amount of its $9.9m legacy loan, in return for achieving specific operational milestones aligned with the company’s engine production expansion plans over the next four years.


Outlook for FY22

Orbital has just come off a solid year, delivering FY21 revenues of $31.2m, flowing through to core earnings (EBITDA) of $1.2m.

Earnings during the year were underpinned by the long-term agreement it has in place with key customer, Boeing-Insitu. To mitigate that revenue concentration, Orbital has pursued a revenue diversification strategy and signed a new customer agreement with Lycoming Engines and Textron Systems, one of the largest suppliers of tactical UAVs in the US market.

The company shipped its first prototype engine to Lycoming/Textron in May, and is on track for a second prototype shipment in December. The engine program is expected to transition into production in 2022.

Orbital is also targeting a “further 1 to 2” contract wins in FY22, as it pursues long-term deals with Tier One global defence customers.

The company expects FY22 revenues to be in line with FY21, building the foundation to execute a long-term growth strategy.

“On a similar revenue outlook to FY21, we will deliver net profitability for FY22,” says Alder.

“We will also maintain our growth margin at 40%, with a lower overhead cost base by $3 million or more, and that will strengthen our working capital position on the back of our re-negotiated WA government loan.”

This article was developed in collaboration with Orbital Corporation, a Stockhead advertiser at the time of publishing.

 This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.