When it comes to building and selling combat helicopters, United Technologies (NYSE:UTX) -- maker of the ubiquitous UH-60 Black Hawk and SH-60 Seahawk -- is the company to beat. But you've got to hand it to runner-up Boeing (NYSE:BA) because it's trying to do just that: Beat United Technologies at its own game -- and beat Textron (NYSE:TXT) while it's at it.
Last week, Boeing took a big step toward reaching that goal when it landed a Pentagon contract to begin acquiring "long-lead" parts needed for the construction of two dozen AH-6i Little Bird helicopters.
Described as a Light Attack/Reconnaissance helicopter, the AH-6M Little Bird is the favored aircraft of U.S. Army Special Operations Forces. Boeing says the helo offers its customers "unmatched power to weight ratio" and "best in class [performance in] urban operations." While the Little Bird is small, that's not necessarily a bad thing, because this gives the helicopter "small optical and aural signatures" (making it harder to detect). And Little Bird packs a big punch -- any combination of ...
- M-134D 7.62mm mini-guns
- GAU-19 12.7mm mini-guns
- M260 7-shot rocket pods
- Hellfire missiles
- or laser-guided 70mm rockets
... that you like, spread out among four weapons stations.
The AH-6i, to which the current contract relates, is a new version of the Little Bird, designed for sale to U.S. allies on the export market. Incorporating technology originally designed for the much more robust Apache attack helicopter program, the AH-6i Little Bird is designed to perform everything from night-time reconnaissance missions to launching rocket attacks on enemy tanks and defensive positions.
In this particular instance, the Pentagon is acting as intermediary on a sale of 24 AH-6i Little Bird helicopters from Boeing to the Saudi Arabia National Guard, which is currently upgrading its armed forces. Since 2010, the Persian Gulf nation has announced plans to purchase as much as $90 billion worth of American military hardware -- not all from Boeing, to be sure. But a lot of it is.
What Little Bird means to Boeing investors
Now, how does the winning of a single Saudi military contract help Boeing to challenge United Technologies, maker of the best-selling combat helicopters on the planet, and Textron as well?
It's not the size of the Little Bird contract that matters as much as it's the trend it portends. Valued at $234.7 million initially, the Pentagon left Boeing's award "undefinitized," meaning that its final value has yet to be determined. (In fact, it will probably increase. Published reports show that Saudi Arabia actually has 36 -- not just 24 -- AH-6i Little Birds on order).
For the time being, though, we can say with some assurance that based on S&P Capital IQ data showing that Boeing's Military Aircraft division earns 9.2% operating profit margins on its sales (which is superior to the 7.6% operating profit margin reported for Boeing as a whole), Boeing will probably earn about $22.6 million in profit on this sale -- or roughly $0.03 per Boeing share.
That may not seem like a lot relative to the $5.96 per share that Boeing earned last year, I'll grant you. But here's the key:
Currently, United Technologies is the biggest supplier of helicopters to the Royal Saudi Land Forces, which according to Flightglobal Insight 2014 has 43 UH-60 variants in its fleet. (Textron edges out United Technologies in total helicopters supplied, with 15 OH-58 Kiowa light attack helicopters with the RSLF, and an additional 37 Bell 212 "Huey" variants serving in the Royal Saudi Air Force -- so 52 Textron helicopters in total). But the math here is expected to change very soon.
Based on publicly announced contracts, Flightglobal notes that the RSLF will soon add 70 Boeing Apache attack helicopters to the dozen it already has in inventory. Add 24 new AH-6i Little Birds to the mix, and Boeing will soon be far and away the dominant provider of combat helicopters to the Saudi Arabian military. The biggest recipient of dollars from Saudi helicopter purchases -- and the company in pole position to win further work as Saudi maintains, upgrades, and eventually buys even more new helicopters for its military.
It's this switch from also-ran to dominant helicopter supplier that makes Boeing's AH-6i Little Bird sale to Saudi Arabia so very important to Boeing's future.
Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of 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.