With the travel industry experiencing huge pressure, manufacturers of commercial aircraft also have seen their business shrinking significantly. While around the globe we are seeing countries and states reopening, the travel industry still is under pressure as the recovery is likely going to take years. Among my readers, that has sparked a renewed interest in defense. That is why we launched the Defense Contracts Monitor which we expand along the way as it forms the basis of our expansion toward covering defense and is accessible to subscribers of The Aerospace Forum.

Source: Debrief

In this report, I will have a look at the defense contracts Boeing received during the month of June. If you want to read the May report, you can find it here.

Figure 1: Boeing Defense, Space & Security contracts (Source: AeroAnalysis)

In June, Boeing received nearly $600 million in contracts, but the funds obligated was slightly higher. This might sound weird, but it does happen in some instances that no amount of money changes hands upon contract award and when the contract is modified (for instance due to an extension), the cash from a previous award is being handed over as well. So, that's how Boeing ended up with 101% of funds received during the month.

Nearly 80% of the contract awards was for the AH-64 Apache as Morocco became the 17th country to order the attack helicopter of which Boeing has now delivered 2,500. The contract covers the procurement of 24 AH-64E Apache helicopters as well as Longbow trainers, a simulator to train crews and rehearse missions. Apart from that contract, Boeing received some contracts for the P-8A to perform certification and test flight activities, training devices for the F-15 for Saudi Arabia, upgrades to the Super Hornet and Growler and a contract for the B61-12 Life Extension Program. Unsurprisingly, Morocco accounted for the bulk of the funds during the month: Almost 75%.

Month over month, we saw a decline of $5.6B driven by lower P-8A and Harpoon sales. It's a sharp month-over-month drop, but nothing truly concerning. Year-over-year there's a decline as well as Boeing last year received a $6.5B contract for a five-year extension for the Joint Direct Attack Munition (JDAM), which turns "free fall bombs" into precision-guided munition.

So, we are seeing contract declines but I'm not too worried about that. Overall, we are seeing that some key programs continue receiving contracts providing Boeing with some useful cash at the moment. When Boeing received some big contracts in previous months, we saw some readers claiming that Boeing was being granted contracts by the US government to infuse the company with cash. That's not completely true, as 70% of the contracts granted during the year came from foreign military sales.

Where the difference is made progress payments and from what I can see more funds obliged at the time of contract award. Progress payments have been increased and that provides the biggest boost as the company now receives 90% of the costs it makes on defense contracts instead of the usual 80%.

During the month of June, Boeing received almost $600 million in defense and services contracts marking a month-over-month as well as a year-over-year decline. Noteworthy is that while year-to-date contracts awards fell >$40B to $7.3B, obligated funds have been in line with last year. We don't quite know how much of those obligated funds Boeing keeps and how much is distributed among suppliers, but for Boeing having these funds come in is important given the state of the commercial aircraft industry. Just like last month, the order inflow wasn't carried by the United States to infuse Boeing with cash.

Important to realize is that just like with the commercial aircraft business, defense and associated services have contract time frames spanning multiple years and generally revenues also will be recognized over that time frame. So, the contract awards we are seeing now do not translate directly into revenues nor do they actually offset the declines at Boeing Commercial Airplanes contrary to what many believe.

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Disclosure: I am/we are long BA, EADSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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