The Boeing Co. BArecently clinched a modification contract for eight CH-47F new build helicopters, aiming to support the Royal Saudi Land Forces Aviation Command (RSLFAC). The deal came under the foreign military sales (FMS) program. Boeing’s CH-47 Chinook is an advanced American twin-engine, multi-mission, heavy-lift helicopter used by the U.
S. Army and other international defense forces.Details of the Deal
Valued at $25.7 million, the contract has been awarded by the U.S. Army Contracting Command Redstone Arsenal, Alabama.
Work related to this deal is scheduled to get completed by Jul 31, 2021 and will be carried out in Ridley Township, PA. The contract will use fiscal 2017 foreign military sales funds.
FMS Share in Boeing’s Performance
Foreign Military Sales (FMS) are growing quickly as the U.S. industry's preferred method for selling defense systems abroad. For companies that have a solid position as US Department of Defense providers but are new to exporting, FMS offers huge benefits in terms of logistic support. Working through FMS, inevitably, has numerous benefits, including reaching a broader customer base, reducing the risk inherent in international sales, facilitating planning and reducing the administrative burden of doing business internationally.
In 2017, FMS contracts accounted for approximately 31% of the company's total revenues. Revenues including foreign military sales through the U.S. government were 27% and 23% of consolidated revenues for 2015 and 2016, respectively. Given its strong order bookings overseas, Boeing expects to increase the company’s FMS share in total revenues going forward for 2018 as well.
What’s Favoring Boeing?
Boeing, being one of the major players in the defense business, stands out among its peers by virtue of its broadly diversified programs, strong order bookings and solid backlog. Its defense segment — Boeing Defense, Space & Security (BDS) — witnessed a 13% year-over-year increase in first-quarter 2018 revenues to $5.76 billion, driven by higher weapons deliveries.
In particular, among other defense equipments, Boeing’s key forte has been combat-proven aircraft. Also, it has started developing military aerial refueling and strategic transport aircraft. Additionally, with its proven expertise in aerospace programs, the company has been clinching a huge number of contracts from the Pentagon for long.
Boeing has been witnessing strong growth in demand for its rotocraft and rotary wing programs that include the CH-47 Chinook. This was evident as Boeing won an FMS contract to deliver CH-47 helicopters to the Royal Canadian Air Force along with deliveries to Spain and Saudi Arabia. We believe the latest contract indicates the strong demand that Boeing would enjoy in the days ahead.
Meanwhile, President Trump proposed fiscal 2019 defense budget in February that provisions for major war fighting investments of $21.7 billion for aircraft. Boeing, being the largest aircraft manufacturer in the United States, will surely be a significant beneficiary from the proposed budget. Such inclusions reflect solid growth prospects for BDS segment, which in turn are likely to boost the company’s profit margin.
Price Movement
Boeing’s stock has rallied about 93% in a year, compared with the industry’s gain of 40.7%. The outperformance was primarily led by robust worldwide demand for its commercial aircraft and for its military jets.