Boeing Might Build a Flying Boat. Is This a Reason to Buy Its Stock?

It's been four years since Boeing (BA 1.51%) sold its last C-17 Globemaster III transport aircraft -- the second-biggest transport in the United States Air Force and, at a list price of $340 million, once one of Boeing's biggest moneymakers.

But what if the Air Force were to ask Boeing to build it an even bigger transport? What if it asked Boeing to build it as a seaplane, one that could land anywhere with water and not be dependent upon runways? What would that mean for Boeing stock? Let's find out.

Introducing the Liberty Lifter Seaplane

This isn't just an idle question, because while Boeing's C-17 program might have ended, a new program to build a new airplane called the Liberty Lifter Seaplane could be just getting started.

Earlier this month, the U.S. Defense Advanced Research Projects Agency, or DARPA, announced it has awarded Phase 1 design concept contracts to two companies. One is General Atomics, the private defense company best known for its Predator drones. The other winner of a DARPA contract, however, is none other than electric airplane company Aurora Flight Sciences -- which aerospace giant Boeing scooped up and turned into a subsidiary in 2017.

In each case, DARPA will ask its defense contractor to design and build a "low-cost X-Plane capable of seaborne strategic and tactical heavy lift...similar in size and capacity to the C-17 Globemaster III transport aircraft." Similar in price, too, one would expect, given the size of this aircraft, although no target price for the plane was disclosed.

Boeing's Aurora describes its concept for the Liberty Lifter Seaplane as "half-boat, half-airplane" and notes that it will partner with another defense contractor subsidiary, Leidos's (LDOS 0.76%) Gibbs & Cox marine engineering company, to provide the necessary maritime expertise.

As DARPA and Aurora describe it, the Liberty Lifter will be a flying boat designed to take off from, land on, and mostly operate close to sea level, where the plane will benefit from "ground effects" that give it extra lift. It will also be capable of flying at altitudes up to 10,000 feet. The plane will be able to operate in seas as high as Sea State 5 (waves up to 13 feet high), to transport cargos as large as six 20-foot container units and weighing up to 90 tons, and to fly as far as 6,500 nautical miles without refueling.

What comes next

If it hits these goals, Aurora's Liberty Lifter will essentially duplicate the payload and range capabilities of Boeing's old C-17 -- with the added bonus of being independent of airports (or seaports, for that matter). Given these characteristics, it's not unreasonable to assume that the plane's cost, too, will be similar to the C-17's $340 million price tag. And when you consider further that Boeing built nearly 280 C-17s over that plane's life span, the total lifetime value of a Liberty Lifter contract could one day exceed $95 billion in today's dollars.

All of that, however, is pie in the sky -- so to speak -- unless and until Boeing actually wins a contract to build it. So what should investors be watching to gauge the company's chances of making this happen?

Well, the Phase 1 contract envisions six months of conceptual design work, followed by nine more months of "design maturation" work if DARPA likes what it sees, and then three more months to prepare to build a demonstration prototype. That would happen sometime in mid-2024.

Thus, it will probably be 2025 or later before we get a really good idea of whether Liberty Lifter will result in a manufacturing contract for Boeing. Even then, Boeing does not expect that it will begin flight testing, much less full-scale production, before 2028.

As is usual with DARPA, the initial amounts Boeing will receive for this work will be tiny: just $5.7 million initially and only $27 million even if all the "phased" development options are exercised. Truly large amounts of money won't arrive unless and until Boeing wins a production contract several years down the road.

Should you buy Boeing stock?

What does all of this mean for investors? Not to put too fine a point on it, but it means: Don't buy Boeing just because you hope it will win this Liberty Lifter Seaplane contract, because that is far from certain. Instead, consider Liberty Lifter a kind of free "call option" on Boeing stock -- extra profit the company might earn in the future, on top of the money it's already making today.

And as I mentioned earlier this week, the money that Boeing's making is already significant, with revenue having risen 35% year over year in Q4 2022 alone. While still emerging from the lousy business conditions caused by the COVID-19 pandemic, Boeing is building back its business and is expected to turn profitable again this very year, earning perhaps $2.22 per share, according to analysts polled by S&P Global Market Intelligence. By next year, Boeing could be well and truly "back," with free cash flow in excess of $7.5 billion and earnings per share of $7.88, giving the stock a valuation of about 27 times forward earnings.

If that seems like a good price to you, though, then sure, go ahead and buy Boeing -- not because of the Liberty Lifter Seaplane contract but despite the fact that it might never even take off.