29 Aug

Boeing Won Another Major Defense Contract in August

WRITTEN BY Anirudha Bhagat

Amid the ongoing crisis with Boeing’s (BA) 737 MAX aircraft, the company received good news from the Department of Defense in August. The company won another major defense contract in August from the USAF (United States Air Force).

Boeing Won Another Major Defense Contract in August

Boeing won F-15QA defense contract

The Department of Defense disclosed the deal on its website on Wednesday. The USAF awarded a contract to Boeing for providing F-15QA (Qatar Advanced) aircrew and maintenance training to QEAF (Qatar Emiri Air Force). Initially, Boeing will have to perform the work in St. Louis, Missouri. Starting in 2021, Boeing will perform the work in Qatar. The deal is worth $500 million. Notably, the deal will likely be completed in August 2026.

The latest Boeing F-15QA contract is part of the deal between the US and Qatar governments signed in 2016. In November 2016, the US government approved the sale of up to 72 F-15QA jets to Qatar for $21.1 billion. The terms of the agreement included weapons, equipment, support, and training. In June 2017, Qatar made a final deal to buy 36 F-15QA aircraft for $12 billion.

The F-15QA is a variant of F-15 strike combat aircraft developed by Boeing for the QEAF. The F-15 is a twin-engine, all-weather tactical fighter jet. Now, Boeing uses Pratt & Whitney’ newly launched F-100 engines to make the aircraft more powerful. Pratt & Whitney is a subsidiary of United Technologies (UTX).

The F-15 aircraft became part of Boeing’s portfolio after it merged with McDonnell Douglas in 1997. Designed by McDonnell Douglas in 1967, the aircraft made its entry in the USAF in 1976. Since then, the aircraft has received continuous updates. The F-15 is among the most successful modern fighter jets. Apart from Qatar, the US has sold F-15 Eagle variants to Israel, Japan, South Korea, Singapore, and Saudi Arabia.

Boeing needed a defense boost

Boeing has won several defense contracts in August worth over $1.7 billion. The most notable contract is the $999 million A-10 Thunderbolt II wing replacement contract received on August 21. On August 20, the company received a $154 million contract to build new Apache AH 64E helicopters. Boeing received the $55.5 million KC-46 Pegasus modification contract August 5. The contract is one of the most critical defense deals for Boeing.

Boeing needed new defense contracts. The company’s commercial aircraft struggled due to the ongoing 737 MAX fiasco. Notably, MAX deliveries have been frozen since mid-March following two deadly accidents within five months. The company’s overall commercial aircraft shipments fell 54% YoY in the second quarter to 90 units. As a result, the division’s total revenues fell 66% YoY to $4.7 billion in the second quarter.

However, Boeing’s defense business unit continued its growth momentum. The division’s sales increased 8% YoY to $6.6 billion. Higher volumes across weapons, satellites, and derivative jets mainly drove the segment’s revenues. The division had approximately a $64 billion order backlog at the end of the second quarter.

The defense contract wins in August will increase Boeing’s order backlog and assure long-term cash flows for the company.

Stock performance

After riding high at the beginning of the year, Boeing stock fell sharply following the Ethiopian Airlines crash. Before the crash, the stock had a YTD (year-to-date) return of 31% as of March 8. However, the YTD return has eroded to 11.6%.

Boeing has underperformed the broader market and the iShares U.S. Aerospace & Defense ETF (ITA). The NASDAQ and the S&P 500 indexes have risen 18.4% and 15.2%, respectively, YTD. ITA has gained 26.3%. The ETF invests in companies engaged in assembling, manufacturing, and distributing aerospace and defense equipment.

Shares of Boeing’s major peers in the defense segment have risen sharply this year. Lockheed Martin (LMT) and Northrop Grumman (NOC) stocks have gained 45.5% and 48.6%, respectively, YTD.

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