Boeing Prepares to Retire the F-18, and the Revenue Hit Could Be Significant

"I can understand perfectly how the report of my illness got about, I have even heard on good authority that I was dead [but] the report of my death was an exaggeration." -- Samuel Langhorne Clemens

Similarly to Mark Twain, who was erroneously reported deceased in 1897 -- but actually survived for 13 more years -- rumors of the demise of Boeing's (BA -0.49%) F/A-18 Super Hornet fighter jet have swirled for nearly a decade. In 2014, for example, Boeing spokeswoman Karen Fincutter famously warned investors that "current orders maintain F/A-18 production through [only] 2016," but after that, the fate of the airplane was somewhat uncertain.

Nine years later, the F-18 is still alive and kicking. But its days do appear to be numbered.

Start the clock

In Feb. 2023, Boeing appeared to sign the death warrant on F-18 production when it announced it would "complete new-build production of the F/A-18 Super Hornet fighter aircraft in late 2025 following delivery of the final U.S. Navy fighters."

Even that statement came with a qualification. Boeing admitted, "production could be extended to 2027 if the Super Hornet is selected by an international customer." With more than one international customer -- or a bit of help from Congress -- it's entirely possible the F-18 could hang around even longer. What's more, Boeing hasn't yet specifically confirmed an end to the production of the F-18's cousin, the EA-18G Growler electronic warfare aircraft.

So long story short, yes, F-18 production may be coming to an end. But it also may not be.

How important is the F-18 to Boeing?

If F-18 production is coming to an end, it could mean Boeing's revenues will take a significant hit going forward.

Consider that in its most recent National Defense Authorization Act, the U.S. Congress appropriated $600 million to pay for eight new Boeing F/A-18 Super Hornets -- that's $75 million per plane. With Boeing currently building F-18s at the rate of about two per month, that works out to potentially $1.8 billion less annual revenue for Boeing after production ceases. (That's two planes per month, times $75 million per plane, times 12 months in a year).

Boeing's defense, space, and security business, which builds the F-18, generated $23.2 billion in sales last year. While not a crippling blow, ending F-18 production does have the potential to roll back Boeing's annual revenues by nearly 8%.

What else does Boeing have up its sleeve?

And yet, it would be a mistake to count this defense giant out of the defense business just yet.

For one thing, building F-18s isn't the only way Boeing makes money off this plane. Servicing and maintaining the planes and upgrading their capabilities are often more profitable. According to S&P Global Market Intelligence data, servicing existing aircraft from Boeing's only significantly profitable business segment last year generated operating profits of $2.7 billion. And Boeing expects to provide "service life modification" to its already-built F-18s through at least the "mid-2030s," alongside "development and upgrades" work that will last for "decades" to come.

That being said, the end of the F-18 does appear to be written on the wall (even if only in pencil). And anticipating F-18 production to end eventually, Boeing is already planning what comes next.

Promising to "pivot" toward other programs, the company highlighted several other defense product lines with futures even longer than the F-18; for instance, ongoing production of the F-15 fighter jet and P-8A Poseidon sub hunter, increasing production of the new T-7A Redhawk training jet, and in perhaps the company's most promising development, growing production of MQ-25 Stingray drone aircraft for refueling carrier jets.

The future for Boeing

If you ask me, that last one is probably the No. 1 item on Boeing's military menu that investors should focus on. With every new headline out of Ukraine and every news story on China's growing missile defensive (and offensive) capabilities, it becomes increasingly clear that the futures of modern air forces lie in drone aircraft that can fly farther than piloted aircraft, perform maneuvers that would make pilots pass out, and most importantly, fly missions without putting pilots at risk of death or capture.

Boeing accomplished a coup when it won the contract to produce the MQ-25 for the U.S. Navy in 2018. Valued in excess of $11 billion, the MQ-25 program has the potential to replace all revenues lost as the F-18 goes out of production. More than that, though, the MQ-25 will enable Boeing to parlay its losing position in piloted fighter jets (which Lockheed Martin and its F-35 now dominate) into a leading position in pilotless drones.

Just because the F/A-18 is going away doesn't mean Boeing's defense business will go away, too. If drones are the future of military aviation, Boeing and its MQ-25 just might be the best way to invest in that future.