Brilliant Beechcraft Buy Immediately Pays Off for Textron, Inc.

$127 million going into Textron's pocket, thanks to new New Zealand contract.

Jan 27, 2014 at 6:30PM

T
Beechraft's T-6C trainer, now in service to the New Zealand Air Force. Photo: Beechcraft.

Three cheers for Textron (NYSE:TXT)!

I know, I know. When Textron announced that it was buying Beechcraft last month, I made a big stink about the how Textron is carrying too much debt already, how it would need to take out $1.1 billion in new loans to finance the sale, and how its debt load would shoot up past $4.4 billion. I still think that's bad business for Textron and bad news for its shareholders. But in one sense at least, Textron's purchase of its rival is already paying dividends ...

Because Beechcraft just booked a big win in the military market.

A big win Down Under
This morning, The New Zealand Ministry of Defence awarded Beechcraft a $127 million contract to supply it with 11 T-6C turboprop trainer aircraft, plus "ground simulators, classroom and computer based training packages to complement practical flying experience." Delivery is due in early 2016.

The contract represents a significant win for Beechcraft (and for Textron, its new parent). Not only will the new planes replace a batch of leased Beechcraft King Air B200s with outright sales of new planes -- securing Beechcraft's position in the market and swelling its revenues. By virtue of this win, Beechcraft also displaced the homegrown CT-4E trainers currently in use by the New Zealand Air Force.

Winning a road game against the hometown team is never easy. The fact that Beechcraft managed it is definitely a point in its favor, and a point in favor of Textron buying Beechcraft.

What's next
Today's news further extends a string of contract wins by U.S. defense contractors Down Under. Currently, New Zealand's Air Force is in the process of making some $2 billion in upgrades to its fixed-wing and helicopter fleets. These include upgrades on Lockheed Martin (NYSE:LMT) C-130 Hercules transports and P-3 Orion subhunters, as well as a $120 million purchase of new SH-2G(I) Super Sea Sprite anti-submarine/anti-surface warfare helicopters from Kaman Corporation (NYSE:KAMN).

Seasprite

Kaman's Sea Sprite, now in service to the New Zealand Navy. Photo: Wikimedia Commons.

Foolish takeaway
A $127 million contract amounts to only 1% of Textron's annual revenues. In the grand scheme of things, that may not sound like much. But with defense budgets under pressure here in the U.S., every dollar that defense contractors like Textron can collect abroad goes a long way toward offsetting cuts in their defense business here at home. Textron shareholders should take the win, and be glad for it.

A 0.2% dividend? You can do better!
I mentioned that I'm still not thrilled with Textron's stock, right? Well, one reason for this is the fact that in addition to carrying a big debt load, Textron also pays a very small dividend -- one of the smallest dividend payouts you'll find anywhere in the defense industry. That's a key reason to be cautious about the stock, because over time, owning generous dividend-paying stocks is one of the best ways there is to get rich. 

Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts recently sat down to identify some dividend payers for you, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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