(BA) BA Gets Order to Support C-17 Cargo Aircraft

The Boeing Company (BA) has received a $2 billion follow-on contract from the U.S. Department of Defense (“DoD”) to help it to maintain its fleet of 246 C-17 cargo planes. Per the contract, the company will provide logistics support to the U.S. military’s C-17 transport planes for the period fiscal 2013 through fiscal 2017. Apart from looking after the maintenance of the aircraft, the company will ensure that spare parts are available for the planes.

Under the C-17 Globemaster III Integrated Sustainment Program (“GISP”), the company will provide support services, such as forecasting, purchasing and material management for the C-17 aircraft. This Performance-Based Logistics (“PBL”) program helps in lowering the costs through economies of scale.

Under Performance-Based Logistics contracts, customers receive an agreed level of system readiness instead of paying for a specified number of spare parts. This approach has allowed the company to apply innovative spares forecasting and modeling tools to maximize aircraft availability while lowering costs.

The Boeing C-17 Globemaster III is a large military transport aircraft. The multi-service C-17 can carry large equipment, supplies troops directly to small airfields in harsh terrain anywhere in the world. It can take off from a 7,600-ft. airfield, carry a payload of 160,000 pounds, fly 2,400 nautical miles, re-fuel in flight and land in 3,000 feet or less on a small unpaved or paved airfield in day or night. It can also perform tactical airlift, medical evacuation and airdrop missions.

The company has been providing C-17 aircraft that provides vital military and humanitarian airlift capability. In June this year, the company delivered sixth C-17 Globemaster III to the UAE Air Force and Air Defense. Earlier in March, UK Ministry of Defense had signed an agreement for one C-17 Globemaster III, bringing the Royal Air Force (“RAF”) fleet to eight.

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. DoD, the Department of Homeland Security, the National Aeronautics and Space Administration (“NASA”), other aerospace prime contractors, and certain U.S. government and commercial communications customers.

The Boeing Company 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 toward a number of prominent Boeing programs. Overall, the growth momentum will be maintained by its order backlog, planned production rate increases and a globally diversified customer base.

However in the near term, headwinds over the global airline industry along with expected cutbacks in the U.S. defense budget loom large over the current valuation of the company.

Like its peer, Erickson Air-Crane Incorporated (EAC), Boeing presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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