Boeing has snagged "important wins" by capturing the MQ-25 unmanned tanker, Huey helicopter replacement and T-X trainer contracts, but will "have to demonstrate better execution" than in the past to translate those awards into improved earnings, Moody's Investors Service said this week.
In a new report, Moody's pointed to the KC-46A aerial tanker program as an illustration of the risk of fixed-cost contracts.
“Even though the KC-46A tanker is a conversion of Boeing’s B767 passenger aircraft, the company experienced significant challenges in the development, design and early production of the aircraft, related in large part to the newly designed fuel transfer systems,” the report says. “This led to aggregate reach-forward losses of $3.366 billion through June 30, 2018 on an initial agreed contract of $4.9 billion for the first four aircraft. Improved performance over the life of the program should allow Boeing to recapture some of these losses.”
Moody's estimated the aggregate value of the three new contracts as about $25 billion.
“The [Boeing defense] segment's backlog remains among the largest in the defense industry and will continue to support revenue and earnings stability over long-cycle periods,” the report notes.
Moody's contends the MQ-25 program likely faces the most risk of higher-than-expected costs.
“Although Boeing was the only bidder to have built the aircraft offered in its bid, there is no evidence that the fuel transfer system is completed, nor is a boom visible in available photos of the [MQ-25] Stingray,” the report adds. “The 'firsts' for this program, specifically, being an unmanned aerial re-fueling aircraft operating from an aircraft carrier, increase execution risk relative to the respective risks in the MH-139 and T-X trainer contracts.”