BIG TIME Bonanza for Boeing: $3.3B Saudi Arabia Deal

16 March 2017

BIG TIME Bonanza for Boeing: $3.3B Saudi Arabia Deal

Boeing Inks $3.3B FMS Deal to Supply AH-64E Apache Copters

by Zacks Equity Research Published on March 16, 2017

Source: Zacks

Aircraft major The Boeing Company (BA - Free Report) secured a modification contract from the U.S. Army for supplying lot 7-11 of AH-64E Apache attack helicopters to the government of Saudi Arabia. Work related to this multi-year deal is expected to be over by Jun 30, 2022.
The Arab Middle East is exploding with arms-and-weapons
deals according to other reports as well

Helicopter bonanza!

Posted 7 March 2017

Source: Arabian Aerospace

It has been an impressive couple of months for Middle East air forces. The US Government approved deals with Qatar for 72 F-15QAs and also Kuwait for 40 F/A-18E/F Super Hornets in mid-November, but in early December came a bonanza of possible helicopter sales valued at more than $7 billion. Alan Warnes reports.

A request by the United Arab Emirates Air Force and Air Defence (UAEAF&AD) for 37 AH-64E Apache helicopters was approved on December 7, while the same day saw the Royal Saudi Air Force (RSAF) given the go-ahead to purchase 48 CH-47F Chinook helicopters.
It has been an impressive few weeks and looks like a bid by the current US Government to wrap up foreign military sales before the new Trump administration takes office on January 27.
It would appear that the GCC air forces are taking plans to strengthen their air forces, seriously.
The war in Yemen has highlighted the need to work together and Arabian Aerospace was told at Bahrain International Airshow (BIAS) in January that it would happen “soon”. These deals illustrate that the GCC nations are taking care of their own tactical inadequacies, in the light of the operations in Yemen as well as any increased threat from Iran.
A proxy war has been raging in Yemen since 2014 between Shiite Iran and the Saudi Arabian allied force, supported by most of the Sunni-led GCC countries. These intended acquisitions will support all their needs.
The proposed $3.5 billion Apache sale includes the remanufacture of the UAEAF&AD’s 28 existing AH-64Ds into AH-64E configuration, together with production of nine new AH-64Es. It comes after several years of negotiations over the purchase of, arguably, the best gunship in the world. The UAE originally operated 30 AH-64As, which were later upgraded to AH-64D Block II standard.

Other big deals Saudi Arabia and China were also announced

Details of the Deal

Valued at $3.28 billion, this foreign military sales (FMS) contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Boeing plans to utilize fiscal 2010, 2017, 2018, 2019, 2020 and 2021 other procurement (Army) funds to complete this deal.

Per the terms of the agreement, Boeing will offer full-rate production of remanufactured aircraft and new build aircraft, remanufacture and new build Longbow crew trainers, peculiar ground support equipment, initial spares, integrated logistics support, and engineering technical services.

The company will carry out the work for this contract in Mesa, AZ.

A Brief Note on AH-64E Apache Helicopter

Boeing’s AH-64 Apache is the world’s most advanced multi-role combat helicopter and is used by the U.S. Army and a growing number of international defense forces. The company has delivered more than 2,200 Apache helicopters to customers around the world.

AH-64E is the latest version of the AH-64 gunship and is equipped with new sensors, avionics and improved night operation capabilities. Further, it has infra-red suppressing exhaust system as well as chaff and flare dispensers, which jointly reduce the chance of being hit by enemy air defense missiles.

Our View

Boeing is one of the largest aerospace and defense contractors, with its defense business standing out among peers on virtue of its broadly diversified programs, strong order bookings and backlog.

Notably, the company’s Defense, Space & Security segment witnessed healthy revenues and margins during 2016, apart from making substantial progress on critical program milestones, including the first flight of its T-X trainer aircraft.

In particular, among other defense equipment, the company’s forte has been combat-proven aircraft.

Designed in 1972, to meet the U.S. Army's need for an AAH (Advanced Attack Helicopter), Boeing’s AH-64A has taken supremacy over the world's premier attack helicopter from Textron Inc.’s (TXT - Free Report) Bell AH-1 Cobra.

During 2016, the company delivered 31 new AH-64 helicopters, up 34.8% from the year-ago number.

With its proven expertise in aerospace programs, the company has been gaining a huge number of contracts from the Pentagon.

In terms of international demand, the United Arab Emirates (UAE) requested for a purchase of 37 Apaches and a few other of its defense equipment and that of Lockheed Martin Corp. (LMT - Free Report) in Dec 2016. The total value of this deal is pegged at $3.5 billion, which on approval will surely boost international revenues of both these defense majors.

Meanwhile, Trump’s proposal to boost the nation’s defense budget by 10% in 2018 from 2016 is likely to benefit defense biggies like Boeing.

Price Performance

Boeing gained about 36.8% in the last one year, outperforming the Zacks categorized Aerospace/Defense industry’s gain of 27.2%. This might have been triggered by the rising international demand for Boeing’s defense products, in particular for rotorcraft, commercial derivatives, fighters, satellites and services in the Asia Pacific as well as Gulf nations, as they have been strengthening their defense budgets of late. Moreover, the company’s earnings are expected to grow 13% over the next five years, indicating further upside for this stock.