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Boeing Clinches $2.9B Deal for KC-46 Aircraft Production

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The Boeing Company (BA - Free Report) recently won a $2.85 billion contract for the production of the fourth lot of KC-46 aircraft, spares and support equipment. The contract came from the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Ohio.

More on the Deal

Per the terms, the contract modification provides for the exercise of an option for an additional quantity of 18 KC-46 aircraft, two spare engines, five wing refueling pod kits, initial spares, and support equipment. With this lot, Boeing is on contract for 52 KC-46 tankers. Work related to the deal will be carried out in Seattle, WA; and is expected to be completed by January 2022.

Here’s What You Should Know About KC-46

The KC-46A Pegasus is a wide-body, multirole tanker that can refuel all U.S., allied and coalition military aircraft compatible with international aerial refueling procedures. Boeing initially designed the KC-46 to carry passengers, cargo and patients. The aircraft is also equipped to detect, avoid, defeat and survive threats using multiple layers of protection, which will enable it to operate safely in medium-threat environments.

What’s in Favor of Boeing?

Being one of the major players in the defense business, Boeing stands out among peers by virtue of its broadly-diversified programs, strong order bookings and solid backlog. In second-quarter 2018, revenues at its Boeing Defense, Space & Security (BDS) segment, which manufactures the KC-46 aircraft and its components, along with other military jets, increased 9% year over year to $5.59 billion.

The sales upside has been largely backed by a slew of contract wins from the Pentagon, courtesy of its proven expertise in aerospace programs as well as programs related to a wide variety of aircraft components and parts.
We expect the latest contract to enhance the value of the KC-46A Pegasus in the global aircraft market, helping Boeing draw more orders for the same.

Recently, The U.S. Federal Aviation Administration (FAA) granted the KC-46 tanker program a Supplemental Type Certificate (STC), verifying that it’s refueling and mission avionics systems meet FAA requirements. The milestone not only marks the completion of the KC-46 FAA certification but will also enable Boeing in advancing aircraft delivery to the U.S. Air Force without facing any other roadblock.

Meanwhile, toward the end of June 2018, the U.S. Senate approved the fiscal 2019 defense budget that provisions for major war fighting investments worth $21.7 billion in aircraft. Interestingly, the budget includes an investment plan of $3 billion for Boeing’s 15 KC-46 tankers.

Stock Performance

Boeing’s stock has gained 42.1% in the last 12 months compared with the industry’s growth of 20.8%. The outperformance was primarily led by robust worldwide demand for its commercial aircraft as well as its military jets.



Zacks Rank & Stocks to Consider

Boeing currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings , Huntington Ingalls Industries (HII - Free Report) and Engility Holdings . While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Engility carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 30.9% to $1.27 in the last 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 16.1% to $2.02 in the last 90 days.

Huntington Ingalls pulled off an average positive earnings surprise of 9.48% for the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 6.4% north to $17.24 in the last 90 days.

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