Electro Optic Systems share price on watch after winning major government defence contract

The Electro Optic Systems Hldg Ltd (ASX: EOS) share price is due to return from its trading halt this morning and will be one to watch.

This follows the release of a major announcement by the aerospace and defence-focused technology company on Friday evening.

What did Electro Optic Systems announce?

Electro Optic Systems has announced that it has entered into contract negotiations with the Commonwealth of Australia for the acquisition of 251 Remote Weapon Stations and related materiel.

According to the release, this acquisition activity is part of the $270 billion capability upgrade for the Australian Defence Force, under the new 2020 Force Structure Plan.

Prime Minister Scott Morrison commented: “The Federal Government is committed to ensuring Australian Defence Force personnel have the tools they need to protect themselves and keep Australians safe.”

“At the same time we must have a robust and resilient defence industry that maximises opportunities for small businesses and supports Australian jobs and local investment,” he added.

Minister for Defence Senator Linda Reynolds CSC notes that the 2020 Force Structure Plan will strengthen the Australian Defence Force’s (ADF) capabilities to respond to an increasingly challenging strategic environment.

Senator Reynolds explained: “The Morrison Government is investing a record $270 billion in Defence capability and infrastructure over the next decade. Investments such as the acquisition of Remote Weapon Stations will make the ADF more capable for the wide range of potential scenarios and threats Australia will face in the future.”

What are Remote Weapon Stations?

Electro Optic Systems’ offers a range of fully stabilised remotely operated weapon stations that can be integrated on various vehicle platforms and used for different mission profiles.

Its remote weapon systems ensure full weapon readiness while the crew operate the system protected within the vehicle. All its stations have been designed with a high level of commonality and modularity to offer users a flexible firepower solution.

What now?

Management advised that the execution of a formal agreement with the Commonwealth of Australia is subject to negotiation and may be subject to certain conditions.

It intends to provide further details when negotiations are complete and a contract has been executed.

Importantly, the acquisition will not interfere with any existing export orders because those have been deferred by customers for up to 12 months and will remain in backlog for later delivery.

Foolish Takeaway.

This is undoubtedly a major milestone for Electro Optic Systems and its shareholders.

And while the contract terms have yet to be released, I suspect this news could propel the Electro Optic Systems share price materially higher during trade on Monday.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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