The Boeing Co. (NYSE:BA) clinched the much anticipated $2.8 billion contract form the U.S. Air Force for the first lot of 19 KC-46 Pegasus aerial tankers. Recently, the Air Force won permission from the Pentagon to sign two production contracts with Boeing.
The contract includes the first two production batches of seven and 12 aircraft as well as spare parts. Boeing expects to build a total of 179 of the 767-based refueling aircraft including the future options. The Air Force will use KC-46 to replace its fleet of KC-135 tankers.
Boeing’s KC-46 program faced multiple delays due to technical glitches in the tanker. In June this year, the Air Force revealed plans to seek compensation from Boeing for delays in the program.
Manufactured on the air frame of Boeing’s 767 commercial jet, KC-46 is the first new U.S. tanker since the 1980s. In the words of Leanne Caret, Boeing Defense, Space & Security president and CEO, “The KC-46 tanker will provide the Air Force unprecedented refueling capabilities, operational flexibility and combat readiness”.
The wide-bodied KC-46 Pegasus is a multirole tanker that can refuel all U.S., allied and coalition military aircraft compatible with international aerial refueling procedures, according to the company. Boeing will start delivering tankers to the Air Force in 2017.
The company incurred losses in the second quarter after it absorbed after-tax charges in relation to three separate programs: the 787, the 747 and the KC-46 tanker aircraft program. The bottom line also plunged 127% year over year, owing to a 787 cost reclassification ($1.33 per share), and charges on the 747 ($1.28) and the KC-46 tanker (62 cents) programs.
No doubt that Boeing has made progress on the KC-46 tanker program. Yet, the question whether the program will prove profitable for Boeing still looms large.
Zacks Rank & Key Picks
Boeing currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the defense space include Ducommun Inc. (NYSE:DCO) , General Dynamics Corp. (NYSE:GD) and Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) . While Ducommun sports a Zacks Rank #1 (Strong Buy), General Dynamics and Aerojet Rocketdyne hold a Zacks Rank #2 (Buy).
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