Winning is an excellent habit, but winning every time is difficult, if not impossible.
This is what happened to The Boeing Company BA. The company has been on a winning spree in the fiercely competitive aerospace and defense space. However, NASA dropped Boeing as a competitor for the Space Station Contract. The contract in contention is a CRS2 contract worth around a billion dollars.
The contract work includes the delivery of cargo to the International Space Station during the period 2018 to 2024. NASA is yet to allot the contact to any one operator and is planning to award it by Jan 2016. Boeing’s loss will be a gain for space-focused companies like Elon Musk’s SpaceX and Orbital ATK Inc. OA, which are still in the race.
Apart from Boeing, another industry heavyweight Lockheed Martin Corporation LMT tried its luck to be a part of the Space Station contract. However, NASA declined Lockheed’s proposal as well. The other two operators – SpaceX and Orbital ATK – have been assisting NASA to ship cargo into space since 2012 and will definitely hold an edge over the others.
Major Space Spending Ahead
Space related spending is going to heat up going forward and every major defense operator will want to grab a share of the galactic pie. Per a release from Euroconsult, a new growth cycle in government space spending is expected to start and average 2.1% over the next 10 years worldwide, reaching $81.4 billion by 2024. Amid defense budget cuts, space programs will present a new window of opportunity for the defense majors.
Will This Loss Really Matter for Boeing?
Every penny matters, but even then we believe that space programs are so vast and varied that failing to win one contract is not going to harm Boeing’s prospect in the long run. The company has a plethora of existing contracts and products to offer in its arsenal to cope with the loss of this single contract.
Boeing is currently working with NASA in developing the CST-100 Starliner capsule to carry astronauts under a separate $4.2 billion space contract. The new spaceships are due to fly to the space station from 2017.
Apart from defense contracts, Boeing has a deep-rooted presence in the commercial aerospace segment. This is an added advantage for Boeing as compared to the other aerospace & defense operators. Boeing once again reported impressive third-quarter results with higher profits (up 18% year over year) and revenues ( up 9%) on the back of robust commercial airplane deliveries. The company exited the quarter with a backlog of 5,700 commercial airplanes valued at a staggering $426 billion.
Zacks Rank
Boeing currently has a Zacks Rank #2 (Buy). Another well-ranked aerospace & defense operator worth considering is General Dynamics GD, sharing the same Zacks rank as Boeing.
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