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The Boeing Company Faces a Future Without Its Fighter Jets--So What?

The Boeing Company Faces a Future Without Its Fighter Jets--So What?
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Defense budget priorities may be nudging The Boeing Company (NYSE: BA) out of the jet fighter business. Will the current trend, which favors rivals such as Lockheed Martin Corporation (NYSE: LMT), impact investors of the aerospace giant?

Not really.

Friendly Skies

Lockheed, which derives a significant portion of its revenue from military programs, would be impacted if things weren't going its way in the defense procurement industry.

Boeing's bread is buttered, however, by its presence in the commercial aircraft business. That civilian market now accounts for two-thirds of sales and 90 percent of earnings. Boeing's revenue from all of its military aircraft programs is just 16 percent of the corporate total and the portion has been declining.

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A potential $5.2 trillion (yes, with a T) market in new passenger jets over the next 19 years will have a major impact on future returns for Boeing shareholders. Boeing currently has a backlog of nearly 900 orders for its state of the art 787 Dreamliner and has two major programs in development to address the expected growth in airline travel.

The 737 Max, the upgraded version of the world's most popular aircraft with more than 8,000 in service and the next generation of the "triple 7," a top seller in the long-range, wide-body category, should be ready to fly over the next few years.

Lightning Up The Skies

The conventional version of Lockheed's F-35 'Lightning II' should be in service in the U.S. Air Force by this time next year. The company, and its investors, are gearing up for that milestone along with the projected debuts of the Marine Corps (the "B") and Navy (the "C") versions of the 5th generation fighter soon afterwards.

The F-35B and F-35C will eventually crowd out two of Boeing's aircraft presently used by the military: the Marine Corps AV-8B Harrier II and the Navy F/A-18 Super Hornet, both of which it inherited after the acquisition of McDonnell-Douglas.

Bottom Line

While it looks like Lockheed Martin will dominate the military fighter jet business for the foreseeable future, things at Boeing, which is not expected to be a big player in that market, look okay thanks to the expected growth in commercial airline travel over the next two decades. Don't cry for either of the aerospace giants.   

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