Boeing Notches Second Big Defense Contract in a Week, Wins T-X Training Jet

The U.S. Air Force announced Thursday that Boeing Co. (NYSE: BA) has been awarded a $9.2 billion contract to build the service’s next training jet. The so-called T-X will replace the Air Force’s venerable T-38 trainer, which first entered service in 1961.

Under the terms of the contract, Boeing will deliver 351 aircraft, 46 training devices and other ground equipment. The Air Force could purchase up to 475 aircraft and 120 training systems under the indefinite-delivery/indefinite-quantity contract. The work is expected to be completed by 2034.

The T-X is a joint project between Boeing and Saab and will be built at Boeing’s facility in St. Louis. During the bidding for the contract, Saab said it would construct a U.S. plant to build the plane, but it has not yet named a location. According to Boeing’s announcement, more than 90% of the T-X will be manufactured in the United States, supporting 17,000 jobs in 34 states.

The Boeing-Saab team beat a bid from Lockheed Martin Corp. (NYSE: LMT) and its partner, Korea Aerospace Industries, and a sole source bid by Leonardo DRS, the U.S. division of Italy’s Leonardo. Boeing’s bid offered the only clean sheet design among the three competitors.

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Air Force Secretary Heather Wilson said:

This new aircraft will provide the advanced training capabilities we need to increase the lethality and effectiveness of future Air Force pilots. Through competition we will save at least $10 billion on the T-X program.

The original Air Force cost estimate for the program was $19.7 billion for 351 new trainers.

The contract begins as a fixed-price incentive fee contract for the first four scheduled delivery lots. At the fifth lot, the contract transitions to a firm-fixed-price deal. Defense News cited Lt. General Arnold Bunch who noted that the $9.2 billion contract amount “would be obligated to Boeing if the service executes all the options that would allow it to buy more aircraft at a quicker pace, purchasing all 475 planes.” In other words, Boeing is assuming a lot of risk.

On Monday the Air Force awarded Boeing a contract worth approximately $2.4 billion to replace the UH-1N helicopter replacement program, and on August 30 the firm won an $805 million award to build the first four MQ-25 Navy tanker drones.

Boeing teamed with Leonardo DRS on the helicopter program, and the initial award of $375 million will pay for four MH-139 helicopters. The drone program could be worth up to $13 billion if the Navy acquires the planned total of 72.

Boeing stock added about 0.7% on Thursday to close at $367.39. Shares traded down about 0.1% in Friday’s premarket at $367.01. The stock’s 52-week range is $251.17 to $374.48.

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