Once again, the Bell-Boeing Joint Project Office, which is a joint venture between Textron Inc. (TXT - Free Report) and The Boeing Company (BA - Free Report) , has clinched a contract from the U.S. Department of Defense (DoD) on Aug 16. This joint venture that is focused on manufacturing V-22 Osprey tiltrotor aircraft received a firm-fixed-price, sole-source contract worth $43 million for the supply of prop rotor gearboxes to the Defense Logistics Agency (“DLA”). On that day the DoD announced a number of contracts exceeding $1.2 billion.
In June this year, the Joint Project Office had received a five-year modification contract worth $4.9 billion for the manufacture of 99 V-22 Osprey tiltrotor aircraft. Per the contract, Bell-Boeing had to produce 92 MV-22 Osprey aircraft for the U.S. Marine Corps, and 7 carrier-variant CV-22s for the U.S. Navy. The contract is scheduled to be completed by Sep 2019.
Among the other award winners last Friday was McKesson Corp. (MCK - Free Report) , which received an option-exercise contract worth $29.9 million to work on a digital imaging network-picture archive communication system for the DLA. However, the major chunk of the contract went to privately held firm Hoist Liftruck Manufacturing of Bedford Park, Ill. This firm received a contract worth $925 million to supply commercial-type material handling equipment to DLA.
The Boeing-Textron joint venture negates any specific business risk. Recently, both the companies posted second quarter results which beat the Zacks Consensus Estimate.
Going forward, Textron’s strong presence in diverse areas of general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks would fetch lucrative returns for the company. Meanwhile, strong demand for Boeing’s defense products would keep it well positioned.
However, the adverse effects of sequestration and defense budget uncertainty cannot be ignored. Both the companies presently retain a short-term Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer Lockheed Martin Corp. (LMT - Free Report) .