Boeing's (BA) military aircraft program continues to offer opportunities for the company. The Chicago-based defense contractor currently produces the C-17 strategic transport for use by the U.S. Air Force and the F/A-18 Super Hornet fighter and attack aircraft for the Navy and Marine Corps and is well over a year into the development of the new KC-46A aerial tanker.
Two years ago things looked bleaker for the company's military aircraft programs. F/A-18 production was ending as the U.S. military was planning a transition to Lockheed Martin's (LMT) F-35 Joint Strike Fighter (JSF). Congress had finally agreed to end the practice of buying a few C-17s each year beyond what the Air Force required. It agreed with the Obama Administration in order to save money and the line began planning to close. The KC-X tanker contest was still going on with Boeing competing against its European rival EADS in a third attempt by the Air Force to award that contract.
Overall the company was looking at a situation where it would not be making aircraft for the United States military.
Things look different now for all three of the aircraft programs. While total quantities are much less than airliner production, sales of the military systems offer good long-term funding through the requirements for maintenance, modifications and improvements. The average defense system is flying now for 30 or more years. Boeing is still supporting the B-52 bombers made almost 60 years ago and there is a requirement for this work especially with the C-17 and the KC-46A programs.
The Navy decided in 2010 to continue production of the F/A-18 beyond what was originally planned due to the JSF schedule delays. These had the potential to cause a "fighter gap." This would mean the Navy would not have enough aircraft for some years as the F-35 wouldn't be available to replace retiring aircraft. That production contract ends in 2014 but now there is a further effort by Boeing and some in Congress to continue the production again because of the JSF taking longer to arrive than planned. The initial money to keep the line going is needed in next year's budget under consideration. The addition of another year or two of production would be profitable for Boeing and allow it to support other attempts for foreign sales by having a larger production line and cheaper prices.
While the C-17 production for the U.S. is ending the company is still selling a few each year to overseas customers. This will allow the line to be extended beyond the planned shutdown date. Recently both Great Britain and Australia ordered further aircraft. India, Canada and some Gulf States have already bought and operate the C-17 and Boeing is hoping to sell the aircraft to further customers. Its goal is to have at least 10 aircraft a year produced to keep the Long Beach, CA., facility open. Reducing the number below that would make it hard to have a viable line and base of suppliers. Even without further sales the current orders will allow another year or two of production.
The KC-46A program is starting to make progress. Boeing's contract for the development includes all of the integration of new equipment onto the 767 airliner as well as testing and delivery of 17 aircraft. It is worth over $4 billion dollars. While there have already been issues with schedule and cost growth Boeing is moving forward and recently signed a contract with Pratt & Whitney, part of United Technologies (UTX), to buy engines. The Government Accountability Office (GAO) recently reported showing concerns with parts of the development program, primarily software, that have the potential to cause schedule slips. Issues like this are common with a program of this scope and there would have to be major delays to seriously affect the program's viability.
As full rate production of the tanker ramps up Boeing will be building at least another 150 or more of the aircraft. That will be where its money is to be made along with the 50 years of support that will follow. The Air Force also plans to award future contracts for tanker aircraft that could be for more of the KC-46A or whole new aircraft designs. Boeing stands to have a good chance of successfully competing for that work.
Of course with the current budget situation all of this could change. The F/A-18 and C-17 production could end with no new orders. The KC-46A could suffer major delays and cost increases would be born by Boeing due to the contract signed with the government. These military aircraft programs would contribute less and less to its revenue and earnings. Boeing could drift toward being only a civil aircraft manufacturer as Lockheed's F-35 becomes the major aircraft system for the U.S. and its allies.
The first scenario looks more likely right now. There will be a few more C-17 sales to foreign customers. If further issues develop with the F-35 more F/A-18 aircraft are likely for both the U.S. and other nations. The KC-46A will meet most of its schedule goals and enter production on time. Boeing will continue to earn a significant portion of its revenue from these aircraft and the programs will balance the civil airliner side of the company.
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