Boeing (BA) Wins $89M Navy Contract For F/A-18 Aircraft

The Boeing Co. (NYSE:BA) has won a contract to incorporate the Block II Infrared Search and Track System (IRST) in the F/A-18 E/F aircraft. It was awarded by the Naval Air Systems Command, Patuxent River, MD.

Contract Details

The contract is valued at $89 million. Per the contract, Boeing will provide the initial design and development, procure prototyping hardware, give efforts for technical risk reduction, offer integrated product support, and technical reviews of IRST Block II with the F/A-18E/F aircraft to support the system through the preliminary design review.

Work is scheduled to be completed by Apr 2020. Majority of the work will be carried out at Orlando, FL; while the rest will be performed in St. Louis, MI. The contract will use fiscal 2017 research, development, test, and evaluation (Navy) funds.

A Brief Note on IRST & F/A-18

An IRST is a technique for detecting and tracking objects, which give off infrared radiation such as jet aircraft and helicopters. Starting 1980s, IRST systems resurfaced on modern designs with the introduction of 2-D sensors that cued both horizontal and vertical angle. Enhanced sensitivities lead to better resolution and range.

Boeing’s F/A-18 Super Hornet – a twin-engine, supersonic, all weather multirole fighter jet – is the U.S. Navy’s primary strike and air superiority aircraft. It is capable of landing and taking off from an aircraft carrier. F/A 18E is a single-seat variant of the Super Hornet, which is about 25% larger than its predecessor, the F/A-18C/D, but contains 42% lesser structural parts.

Notably, the F/A-18 IRST system incorporates Lockheed Martin Corp.’s (NYSE:LMT) IRST21 sensor, GE Electronics Company’s (NYSE:GE) FPU-13 Fuel Tank Assembly and the Meggitt (LON:MGGT) Defense Industry Environmental Control unit.

Why 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 particular, among other defense equipment, the company’s key forte has been combat-proven aircraft. Also, it started developing military aerial refueling and strategic transport aircraft of late. With its proven expertise in aerospace programs, Boeing has been clinching a huge number of contracts from the Pentagon for long.

Recently, Boeing won a modification foreign military sales contract valued at $488.1 million from the U.S. Army to remanufacture 38 AH-64 Apache (NYSE:APA) aircraft. Again, in April it secured a modification contract worth $168.8 million from the U.S. Air Force to upgrade F-15 Combined APG-63 Version 3 (V3) Radar Improvement Program and APG-82 Version 1 Radar Modernization Program (RMP) radar. Toward this end, we expect the recently won contract to add further impetus to the company’s growth trajectory.

Meanwhile, Trump’s proposal to boost the nation’s defense budget by 10% in 2018 from that of 2016 is likely to benefit defense biggies like Boeing.

Price Movement

Shares of Boeing have rallied 45.2% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry’s gain of 24.5%. This could be because the company’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. In addition, the company poses strong competition to its peers like Huntington Ingalls Industries, Inc. (NYSE:HII) .

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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