The Pentagon is seeking to grant a contract to develop and build a long-range stealth bomber as part of an expansive update of the United States Air Force’s fleet. The hope is for it to be fully integrated by the mid-2020s.
Among the parties pursuing the contract is a collaboration between aerospace and defense industry leaders The Boeing Company (NYSE: BA) and Lockheed Martin Corp. (NYSE: LMT), as well as Northrop Grumman Corp. (NYSE: NOC), the developer of the Air Force’s current stealth bomber, the B-2 Spirit.
The official motive behind the upgrade is to maintain peak national security and nuclear deterrence.
Few details about the bomber’s capabilities are known to the public at this time, which can be taken as a testament to how well the bomber’s stealth technology works.
There have been indications that the aircraft will be long-range, have a large weapons capacity, and will be able to operate either autonomously or with a pilot.
The price tag is expected to be $550 million per airplane, projecting a $55 billion total based on the minimum order of 100 planes. However, the total price of the contract will go up along with inflation, so the final number will be determined by whether or not it is completed on time.
Luckily, the Air Force has graciously offered to cover any risks of cost overrun, courtesy of American taxpayers.
While military contracts such as these provide wonderful investing opportunities, any update of the Air Force’s stealth bomber is anticipated to be heavily taxing on the already swollen military budget.
In 2014, the United States’ military spending not only exceeded that of any other country, but also that of the combined spending of the rest of the countries in the top 10.
The damage will likely be up there along with the costs of Lockheed Martin’s F-35 and Boeing’s KC-46. With military spending consisting of over half of the federal budget, surely there are more pressing expenses on the domestic front.
Depending on which company wins the contract, it, along with the investors who got in at the right time, would be looking at a windfall for years to come.
At The Wealth Advisory, we’ve had Boeing in our portfolio for almost three-and-a-half years. When we first purchased BA, the share price was $61.80. The stock has since climbed to $153.24, a gain of more than 260%.
If Boeing wins the contract along with Lockheed Martin, which I expect it to, look for both companies’ shares to go even higher.