Boeing (NYSE:BA) has been awarded $43 million to construct four large unmanned submarines for the U.S. Navy. The deal's a small one for the aerospace giant but a big step in the right direction for a defense unit that has faced significant criticism over the past two years.
The Navy is ordering test vessels based on Boeing's 50-foot-long Echo Voyager unmanned design, a diesel electric-powered vessel able to dive to 11,000 feet and reach a maximum speed of eight knots. The finished product, which the Navy calls the Orca Extra Large Unmanned Undersea Vehicle (XLUUV), is designed to have a modular frame with a large and flexible payload bay.
Boeing beat out Lockheed Martin for the award. In 2017, both companies were awarded about $42 million apiece to develop and design a new autonomous submersible. Boeing's Orcas are expected to be delivered for evaluation by 2022.
Boeing is working with shipbuilder Huntington Ingalls on the project, with the government award document saying that more than 25% of the work on the Orca will be done at Virginia Beach, Virginia, where Huntington runs the massive Newport News shipyard.
A versatile workhorse
The Navy is experimenting with a number of different unmanned ships and submersibles, hopeful to see the same sort of dramatic expansion of capabilities the Air Force has experienced since first introducing drones over the battlefield in the 1990s. The Orca should stand out from other robot sub designs due to its size and its capabilities.
While most so-called UUVs launch from the side of a ship or submarine and have to stay within range of its mother ship to operate, the Navy wants the Orca to be able to leave home port and travel thousands of nautical miles without returning to port. The Navy envisions a wide range of potential missions for the sub, including spy and reconnaissance work, tracking enemy vessels, or even deploying mines or weapons in a combat situation.
Ideally, a relatively inexpensive fleet of Orcas and other drone ships could be available for missions deemed too dangerous for crewed ships or be used to overwhelm enemy detection systems and help better camouflage and protect crewed vessels. The sub can carry about 2,000 cubic feet of cargo and can also support payloads mounted on its outer hull.
A (small) addition to the bull case
The contract is by no means a blockbuster win for Boeing, which generated $23.2 billion in defense revenue alone in 2018. The Navy would have to buy thousands of Orcas for this program to move the needle.
But it's an important victory for a unit that usually plays second fiddle to Boeing's commercial aircraft business and which, just a year ago, was going through organizational upheaval in an attempt to save its reputation after facing a public scolding from a key Air Force official. Autonomous is a large and growing part of the Boeing Defense playbook, and the company is assembling an impressive roster of crewless aircraft and vessels able to cater to the Pentagon's wish list.
Check out the latest Boeing earnings call transcript.
Eventually, the remarkable multi-year surge in commercial jet sales will come to an end, and Boeing's defense business will be asked to pick up some of the slack. With each win like the Orca competition, the outlook for defense is steadily improving.
The Orca contract isn't a reason to buy Boeing shares. But it is a reason for Boeing owners to sleep easy keeping the shares in their portfolios for the long haul.