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Boeing (BA) Wins $157M FMS Deal to Aid Saudi F-15 Program

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The Boeing Company (BA - Free Report) has clinched a modification contract for offering the F-15SA Original Equipment Manufacturer Training Program to the Royal Saudi Air Force (RSAF). The deal was awarded by the 338th Specialized Contracting Squadron, Joint Base San Antonio-Randolph, TX.

Valued at $156.9 million, this Foreign Military Sales (FMS) deal is expected to be completed by Dec 31, 2021. Work related to the deal will be carried out in King Khalid Air Base, Khamis Mushayt; King Faisal Air Base, Tabuk; and King Abdul Aziz Air Base, Dhahran, Kingdom of Saudi Arabia.

Rationale Behind the Deal

Saudi Arabia is currently the largest buyer of U.S. weaponry. According to the Stockholm International Peace Research Institute, Saudi Arabia accounted for 18% of U.S. arms sales in the past five years, totaling around $9 billion. As a result, it is quite apparent that the U.S. defense majors like Boeing are likely to secure frequent contracts from the Saudis like the latest one.

Considering the current geopolitical tensions in Saudi Arabia, the latest contract seems to have been prompted by the recent drone attack that rattled the Saudi oil installations over the weekend. Notably, a sudden strike by twenty-five drones and missiles, per CNBC, hit the world’s largest crude oil processing facility, forcing Aramco to cut down its production by almost 50%. The situation has once again compelled Saudi Arabia to strengthen its defense arsenal.

Boeing’s Expertise & Prospects

Boeing’s key forte lies in the designing and manufacturing of combat-proven aircraft. Also, the defense major is an expert in offering associated training programs. With an increasing demand for realistic training, which is concurrent and affordable, Boeing’s training system gives pilots, aircrews and maintainers a cost-effective training service. These developments should support Boeing’s growth, considering the rising defense spending provisions made by the current U.S. administration as well as other governments across the globe.

As per a report published by MarketWatch, the military aircraft market is projected to witness a 1.7% CAGR in terms of revenue over the next five years, with the global market size set to reach $56.9 billion by 2024 from 2019.

Price Movement

In a year’s time, shares of Boeing have gained 3.3% compared with the industry’s 7% growth.

Zacks Rank & Key Picks    

Boeing currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are L3Harris Technology Inc (LHX - Free Report) , Aerojet Rocketdyne Holdings, Inc. and Teledyne Technologies Inc. (TDY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

L3Harris’ long-term growth estimate currently stands at 8%. The company delivered average positive earnings surprise of 4.21% in the trailing four quarters.

Aerojet Rocketdyne’s long-term growth estimate is pegged at 5.5%. The company delivered average positive earnings surprise of 25.46% in the last four quarters.

Teledyne Technologies’ long-term growth estimate currently stands at 7.5%. The company delivered average four-quarter positive earnings surprise of 9.26%.

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