Aug 7 2020 - Boeing Wins In Defense
Boeing received an important fighter jet contract.
3% of contracted value was obligated at award.
Low of percentage obligated funds caused by F-15EX contract award which serves as a program ceiling.
Defense business is an important source of cash.
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With the travel industry experiencing huge pressure, manufacturers of commercial aircraft also have seen their business shrinking significantly. While around the globe we are seeing countries and states reopening, the travel industry still is under pressure as the recovery is likely going to take years. Among my readers, that has sparked a renewed interest in defense. That's why we launched the Defense Contracts Monitor which we expand along the way as it forms the basis of our expansion toward covering defense and is accessible to subscribers of The Aerospace Forum.
Source: CBS San Francisco
F-15EX Refresh Brings Multi-Billion Contract
Figure 1: Boeing Defense, Space & Security contracts (Source: AeroAnalysis)
In July, Boeing received nearly .4B in contracts, but the funds obligated were “just” ~0 million. Given higher payouts on progressing projects, one would think higher funds obligated and contract awards also would be a way to support the defense industry during this pandemic. This is not untrue, but it's important to realize that Boeing received a multi-billion IDIQ ( indefinite delivery/indefinite quantity) contract which merely put a ceiling for the program against which task orders will be placed.
Nearly all (97%) of the contract awards was for the F-15EX launch, which provides the US Air Force a replacement to the aging F-15C/D fighter jets for homeland security tasks as well as working horse tasks carrying a large number of weapons under wing. The platform also provides foreign sales opportunities. The importance of the contract award has been discussed in detail in a previous report.
Month over month, we saw an increase in contracted value of 22.8B driven by the F-15EX contract award, while last month’s seller, the AH-64 Apache, dropped from 6.6 million to .3 million which is no reason for concern. During the month Boeing received contracts for the F/A-18 to manufacture control surfaces for the F/A-18 E-G Super Hornet, update critical safety items on the Apache, supply the US Air Force with landing gear trunnions, the procurement of four additional Configuration 2 Ground Based Interceptor boost vehicles and sold 9 MH-47G Chinooks.
Contrary to previous months, the order inflow came exclusively from the US. Year-over-year, Boeing saw the funds obligated increase by 0 million.
During the month of July, Boeing received .4B million in defense and services contracts marking a month-over-month as well as a year-over-year increase. The F-15EX contract award was the eye-catcher during the month. Funds obligated were 5.5 million providing Boeing with some much-needed cash, though the majority of the cash likely comes from accelerated progress payments. Though at a low level during July, we are seeing other defense programs continue to generate value for Boeing.
Important to realize is that just like with the commercial aircraft business, defense and associated services have contract time frames spanning multiple years and generally revenues also will be recognized over that time frame. So, the contract awards we are seeing now do not translate directly into revenues nor do they actually offset the declines at Boeing Commercial Airplanes contrary to what many believe.