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.
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).
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.