Boeing Secures Navy Deal to Modernize F/A-18 & EA-18G Jets

The Boeing Company BA recently won a task order to support F/A-18 A-F and EA-18G aircrafts for the U.S. Navy and the government of Australia.  Work related to the deal is scheduled to be over by July 2022.

Details of the Deal

Valued at $22.6 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms, this aircraft behemoth will procure the non-recurring engineering required for the redesigning of the Data Bus Interface Unit and the Deployable Flight Incident Recorder of the Deployable Flight Incident Recording Set (DFIRS) to support the aforementioned jets.

Apart from addressing obsolescence issues, this redesigning will provide additional memory and a 406 MHz beacon capability. The latest order also includes the development of three DFIRS Automated Test Station testing assets to support the modernizing process and development related activities. These testing assets will be used during the production of the redesigned DFIRS system. 

The majority of the work will be performed in St. Louis, MO and Ontario, Canada. Fiscal 2018 aircraft procurement (Navy) and foreign military sales funds will be utilized to finance this project.

A Brief Note on F/A-18 and E/A-18

Boeing’s F/A-18 Block III Super Hornet is a twin-engine, supersonic, all weather multirole fighter jet. The U.S. Navy’s tactical and air superiority aircraft is capable of performing virtually every mission in the tactical spectrum, including air superiority, day/night strike with precision-guided weapons, fighter escort, close air support, suppression of enemy air defenses, maritime strike, reconnaissance, forward air control and tanker missions.

Boeing’s EA-18G Growler is the most advanced airborne electronic attack platform which operates from either an aircraft carrier or from land bases. The Growler aircraft has 11 weapon stations for carrying electronic mission systems and weapons. The major contractor Northrop Grumman (NOC) manufactures the rear and center fuselage sections and is also responsible for the manufacture of the structural components.

Notably, DFIRS provides rescue teams with an efficient means of finding survivors in case of accidents. Therefore, we believe that the system redesigning and upgrade should ensure further flight safety for the aforementioned military jets.

What’s Favoring Boeing?

Boeing is one of the major players in the defense business and stands out among its peers by virtue of its broadly diversified programs, strong order bookings and solid backlog. In first-quarter 2018, revenues at its defense segment — Boeing Defense, Space & Security (BDS) — increased 13% year over year to $5.76 billion. Boeing's backlog at BDS stood at $50 billion, 36% of which comprised orders from international clients. In particular, among other defense equipment, the company’s key forte has been combat-proven aircraft. Also, Boeing has been winning a huge number of contracts from the Pentagon for long, courtesy of its proven expertise in aerospace programs.

Inevitably, Boeing has been witnessing strong demand for its fighter aircrafts and major aerospace programs, including the F-18 and EA-18 aircrafts. This is evident from the contract that it secured for 28 F-18 Super Hornets in the first quarter, for Kuwait. We believe this latest contract to substantiate Boeing jet fighters’ strong position in the global market.

Meanwhile, in February 2018, President Trump proposed fiscal 2019 defense budget that provisions for major war fighting investments worth $21.7 billion for aircraft. Boeing, being the largest aircraft manufacturer in the United States, will surely be a significant beneficiary from the proposed budget. This financial plan further includes an investment plan of $2 billion for procuring 24 F/A-18 aircrafts. Such proposed inclusions reflect solid growth prospects for the BDS segment, which in turn are likely to boost the company’s profit margin.

Price Movement

In a year’s time, shares of Boeing have soared about 98.3% compared with the broader industry’s rally of 43.9%. This outperformance can be primarily attributed to significant demand for its military jets along with robust worldwide demand for its commercial aircraft.

Zacks Rank & Other Key Picks

Boeing currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks from the same sector include AeroVironment AVAV, Kratos Defense & Security Solutions KTOS and Wesco Aircraft Holdings WAIR. While AeroVironment and Kratos Defense sport a Zacks Rank #1 (Strong Buy), Wesco Aircraft carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment delivered an average positive earnings surprise of 147.43% in the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings rose by 10 cents to $1.00 in the past 60 days.

Kratos Defense pulled off an average positive earnings surprise of 9.52% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved up by a penny to 19 cents in the past 60 days.

Wesco Aircraft came up with a positive earnings surprise of 29.41% in the fiscal second quarter 2018. The Zacks Consensus Estimate for fiscal 2018 earnings moved north by 7 cents to 77 cents in the past 60 days.

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