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Boeing Wins F-15SA Deal for Cumulative Face Value of $305M

Zacks

The Boeing Company BA recently secured a modification contract worth $50 million for original equipment manufacturing of (OEM) Royal Saudi Air Force F-15SA fighter jet. Work related to this deal is expected to be over by Aug 6, 2019.

Details of the Deal

The contract was awarded by the 338th Specialized Contracting Squadron, Joint Base San Antonio Randolph, Texas. Per the terms, the latest modification offers a one-year extension to the existing contract’s performance period, thus taking the total cumulative face value of the deal to $305 million.

Foreign military sales funds will be used to carry out the task in Khamis, Saudi Arabia.


A Brief Note on F-15

Boeing’s F-15 Strike Eagle is a twin-engine, all-weather tactical fighter aircraft. Its proven design is unbeatable in air-to-air combat, with more than 100 aerial combat victories. The F-15SA is a variant of F-15 that has been developed for the Royal Saudi Air Force.

Notably, the F-15SA model provides improved performance and increased survivability at a lower life-cycle cost. The aircraft has two additional wing stations for increased payload and capability.

Our View

With rising security threats across the globe, apart from developed nations like the United States, developing economies like Saudi Arabia are ramping up their arsenal. Considering the fact that the United States is the largest exporter of weaponries in the world and Boeing is one of the largest aerospace and defense contractors, the company has served as a loyal partner for Royal Saudi Air Force in defending its nation.

Interestingly, over the years, Boeing has developed a genial relationship with the Kingdom of Saudi Arabia ("KSA"). The company’s defense unit started doing business with the nation following Royal Saudi Air Force’s purchase of F-15C/D fleet in 1978. Notably, this remains the mainstay of KSA’s air defense till date.

Since then, Boeing has been winning a number of contracts from the KSA for advanced military weaponries. Of the latest notable deals, in August 2017, the company won a $223-million contract for supplying eight CH-47F new helicopters to support the Royal Saudi Land Forces Aviation Command.

Additionally, to further strengthen its ties with KSA, Boeing announced on Mar 30, 2018 that it has signed a Memorandum of Agreement with Saudi Arabian Military Industries to form a new Joint Venture ("JV") worth $450 million. The JV will help to localize more than 55% of the maintenance, repair and overhaul (MRO) services for fixed and rotary-wing military jets in Saudi Arabia. It goes without saying that the latest contract win will allow the company to expand its footprint in KSA, which has bountiful prospects.

These developments is likely boost Boeing’s defense unit’s growth trajectory, which registered a 5% sales growth in the fourth quarter of 2017, reflecting a top line worth $5.5 billion.

Price Movement

Boeing’s stock has surged about 80.5% in a year compared with the broader industry’s gain of 43%. The outperformance was primarily backed by robust worldwide demand for its commercial aircraft and military jets.

Zacks Rank & Key Picks

Boeing carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the same sector are Huntington Ingalls HII, Curtiss-Wright Corporation CW and Northrop Grumman Corporation NOC. While Huntington Ingalls and Curtiss-Wright flaunt a Zacks Rank #1 (Strong Buy), Northrop carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls delivered an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up by $5.44 to $17.38 in the last 90 days.

Curtiss-Wright Corporation pulled off an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved north by 60 cents to $5.79 in the last 90 days.

Northrop Grumman Corporation came up with an average positive earnings surprise of 16.17% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has increased by $1.73 to $15.25 in the last 90 days.

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