Boeing's Defense Future: Stock Remains a Fortress

Boeing (BA) has protested the award of the KC-45 tanker contract to a Northrop-Grumman (NOC) led team with EADS, Inc (EADS) by the Air Force. While this is a large contract, for up to 400 aircraft with an initial order of 150 or more, it is not key to Boeing's future earnings or profitability. Boeing is still a significant aircraft provider to the United States and other nations. The CV-22 tilt rotor just had a significant production order placed, and there is work with the C-17 for Canada and NATO. The US may well also order more of those critical aircraft. Boeing also has significant work with US Army helicopters such as the AH-64 and CH-47. Boeing will also provide aircraft to the US Navy for the maritime patrol mission.

Boeing is also a major player in the provision of space launch vehicles, satellites and technical and integration services to the US military. In fact this area now generates more contracts then the provision of aircaft. Boeing also of course has a core business of civil transport aircraft. Once the 787 Dreamliner gets going, that aircraft will drive revenue and profitability for the next several years, as Boeing has projected sales of $120 billion. Much of Boeing's current problems may be traced to the delays in this aircraft. One of the arguments some have made to deny Boeing the tanker contract is that recent history is against them being to deliver a quantity of aircraft on time.

All of this indicates that despite not winning the tanker contract, there is much in Boeing's future to indicate that once the 787 begins delivery the company will continue to grow and be profitable. The loss of this contract was just a bump in the road; while it was a blow to the company's prestige, it does not in the long run harm the company. The complete blow-up over the tanker lease in 2002-2004 could have had a serious negative effect on its dealings with the DoD, but because of the limited industrial base of the United States, it did not. Overall, in the long run the stock remains strong.

Disclosure: none