Boeing Steady with Chinook Orders - Analyst Blog


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For foreign military sales ("FMS"), The Boeing Company ( BA ) has received a contract for the delivery of 14 CH-47F Chinook helicopters worth $370 million from the U.S. Army. Per the FMS contract, the U.S Army will deliver these to Australia and the United Arab Emirates ("UAE").

The company expects to deliver these helicopters to the Army in early 2014. Out of the 14 Chinooks, Australia will receive 7, UAE will get 6 and the U.S Army will keep 1 for its own requirements.

The Boeing CH-47 Chinook is an American twin-engine, tandem rotor heavy-lift helicopter. Its speed of 170 knots is faster than other existing utility and attack helicopters. Its main functions include troop movement, artillery emplacement and battlefield resupply.

In August 2011, the company had received a sizeable contract, from the UK Ministry of Defense, worth $1.64 billion to provide 14 new CH-47 Chinook helicopters and associated support to the Royal Air Force for the first five years. Also, the company is in the middle of its first multiyear contract for 191 CH-47F Chinook aircraft that it received in 2008 for approximately $4.3 billion.

Boeing is trying to keep pace with the slew of helicopter demand both in the domestic and international markets. In November 2011, the company had submitted a five-year, firm fixed-price proposal to the U.S. Army for a multiyear contract for the production and delivery of 155 CH-47F helicopters. The contract proposal will help Boeing to book double-digit percentage savings over a single-year procurement strategy. Moreover, it will allow the company to make necessary investments in production tooling and processes, and chalk out more efficient plans for capital expenditures.

Additionally, in September 2011, Boeing invested $130 million to create a world-leading H-47 Chinook manufacturing facility. This will increase Chinook production rates to six aircrafts per month from the current rate of four per month.

We believe that Boeing is among the best-positioned in its sector due to its balanced exposure to commercial aircraft and defense equipment. With the gradual recovery of the global economy, we believe freight and passenger traffic will improve going forward. Also, the U.S. defense budget is skewed towards a number of prominent Boeing programs.

However, in the near term, we are concerned about the headwinds over the global airline industry along with expected cutbacks in the U.S. defense budget.The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Chicago, Boeing Company is a premier jet aircraft manufacturer and one of the largest defense contractors in the U.S. The company's customers include domestic and foreign airlines, the U.S. Department of Defense, the Department of Homeland Security, the National Aeronautics and Space Administration, other aerospace prime contractors, and certain U.S. government and commercial communications customers. The company mainly competes with Lockheed Martin Corporation ( LMT ) and Northrop Grumman Corporation ( NOC ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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