Boeing Co (NYSE:BA) has built a reputation on designing and building some of the best airliners in the world, but investors often forget that BA stock is also the second-biggest defense contractor in the United States—and possibly the world. However, recently, Boeing lost the Pentagon’s LRS-B supersonic bomber contract to Northrop Grumman. That blurred the market’s perception of Boeing’s role as a defense contractor and fueled speculation about its potential to win future lucrative orders from the Pentagon, putting pressure on Boeing stock.
There is no question that Boeing must look for new sales outlets to prolong the current production of the “F-18.” Kuwait, for one, is waiting for Congress to approve an order for 28 (with options for 12 more) F-18 “Super Hornet” fighters. Navy Secretary Ray Mabus has urged the arms export bureaucracy to hurry up already and give Boeing the green light to sell the jets. While, that is a small order by Pentagon standards, it would sustain the Boeing production line for at least another year, possibly for even 20 months. (Source: “Mabus: Get Moving On That F-18 Sale To Kuwait,” Breaking Defense, February 17, 2016.)
The F-18 contract for Kuwait could spur additional deals. Kuwait and Qatar want to enlarge their respective air forces. Qatar is waiting for the Obama Administration to approve the purchase of Boeing’s “F-15s,” but Israel has opposed the deal. It has also opposed the Kuwait F-18 deal, which is slowing down the process. (Source: “Is Boeing Being Pushed Out of the Combat Jet Business?” Fortune, February 17, 2016.)
Boeing is already working on the sixth generation “F/A-XX.” This new fighter could replace the F-18 and even the “F-22.” This is no ordinary drone. It is a twin-engine stealth wing fighter, which Boeing will offer in human pilot and drone (UAV) versions. By keeping the production lines moving, Boeing stands a better chance at winning the next big Pentagon jet order with its latest aircraft. The U.S. military will need a sixth-generation fighter plane sooner rather than later.
Russia’s Sukhoi has accelerated development of its sixth-generation fighter project. It will also come in manned and UAV models and the Russian air force wants it by mid-2020.
Boeing and the U.S. military are also concerned that China has skipped several generations and is moving straight to the top. It is working on two sixth-generation jet fighters, the “T-50” (PAK FA) and the “Chengdu J-20.” The designs include lasers, rather than machine guns. In other words, its sixth generation of fighter aircraft will be closer to Luke Skywalker’s “Red 5” in Star Wars than a “Spitfire” in the Battle of Britain. There’s no word on cost, but the latest Pentagon contract for an airplane, the new bomber, was valued conservatively at $80.0 billion.
Investors should note that Boeing’s defense business is safe and has the legs to go boldly into a future that only science fiction writers could have imagined. Defense contracts are important for aerospace companies because they also help finance ever more expensive civilian projects. Boeing is looking ahead to deliver 900 civil aircraft this year, compared to 762 aircraft delivered in 2015. That’s roughly a 20% increase.
Boeing is also mulling developing a new mid-range aircraft to go head-to-head with the Airbus “A321.” It will decide within 12 to 18 months.