Boeing Secures $99M Air Force Deal To Buy LAIRCM Block 30

Aircraft major The Boeing Company (NYSE:BA) recently won a modification contract from the U.S. Air Force for the acquisition of the Large Aircraft Infrared Countermeasures (LAIRCM) Block 30 hardware as contractor furnished equipment. Valued at $99 million, the contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH.

Work, expected to be complete by Aug 24, 2018, will be executed at Seattle, WA. The contract will use fiscal 2015 and 2016 aircraft funds, which were obligated when Boeing received the original contract.

Under the terms of the contract modification, Boeing will receive the LAIRCM Block 30 hardware for low-rate initial production of the Lot 1 and Lot 2 aircraft. The production procedure will include non-recurring engineering required to account for known and future diminishing manufacturing sources and material shortages issues. The contract will also offer Block 30 common configuration for the entire aircraft fleet.

What’s LAIRCM?

The LAIRCM is an active countermeasure that can automatically detect a missile launch. On identifying a missile, LAIRCM determines if it is a threat and activates a high-intensity, laser-based countermeasure system to track and destroy the missile on its own, with no action required by the crew. The primary purpose of the LAIRCM program is to protect large aircraft from man-portable missiles.

Currently, defense giant Northrop Grumman Corporation’s (NYSE:NOC) AN/AAQ-24(V) Directional Infrared Countermeasure (DIRCM) system is the only DIRCM system in production that can protect an aircraft from infrared-guided missiles. LAIRCM is one variant of such DIRCM.

Significance of LAIRCM Block 30

The Block 30 LAIRCM configuration, incorporating the latest system processor technology, infrared missile warning sensors, Viper laser and a new control interface unit, provides the most effective countermeasures against Man-Portable Air Defense System (MANPADS).

Our View

Of late, terrorist groups have been increasingly using cheap yet deadly man-portable missiles. Thus, an effective anti-missile solution for the protection against such threats is the need of the hour and a well-equipped, developed nation like the U.S. will always want to be well prepared for any sudden assault.

Being one of Pentagon’s prime defense contractors, Boeing is sure to benefit from rising demand for its advanced defense systems. In its last earnings release, despite reporting a sales drop, Boeing’s Defense, Space & Security (BDS) business unit recorded a backlog of $55 billion, which reflects the huge demand for its defense equipment.

Going forward, the President's fiscal 2017 budget proposal includes a number of significant BDS programs, which would accelerate top-line growth at the segment. We believe the latest contract modification will be a major catalyst for sales growth at Boeing.

Stocks to Consider

Both Boeing and Northrop currently carry a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (NYSE:EGL) and Ducommun Inc. (NYSE:DCO) , both of which sport a Zacks Rank #1 (Strong Buy), General Dynamics (NYSE:GD) carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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