Boeing (NYSE:BA) ending Military Fighters?

Having spent billions of dollars since 1923, the US government is finally cutting down its military budgets; companies such as Boeing (NYSE:BA) will take the hardest hit by this decision. Buying fighter jets and trainers designed and built by a division in Boeing (NYSE:BA), totally different from its consumer travel planes, started seven years after its incorporation as Pacific Aero Products Co.

From that first plane designed by The Boeing Co. (NYSE:BA) the company had successfully built and delivered 157 PW-9 fighters to the US Military in 5 years. That makes it an average of around 31 to 32 planes, if we ignore the learning curve and economies of scale. This year however, almost nine decades after earning extravagant profits the company is down to delivering a mere 9 F-15 Eagle Fighter’s, and 31 F/A-18E/F Super Hornets as well as EA-18G Growlers combined together.

This brings down the giant’s delivery average to 4 per month with the F-15 having no particular set delivery schedule as the company has announced it would be shutting down the production of this legendary plane. The FA-18 is ending its production in three years with the F-15 line wrapping up production in the next 5 years.

Once these two programs are shut down, the Boeing (NYSE:BA) St Louis plant would be facing major problems in the form of layoffs and maybe even factory closure if they don’t start another production program. This is a great concern for the state as the economy would be hit hard, along with numerous families, and could have adverse effects like homelessness or a spike in crime rate and unemployment.

The plant closure which is the closest is the Boeings (NYSE:BA) Long Beach plant in California manufactures military cargo jet planes. Next year it is scheduled to close because there is no project in the pipeline that requires production that is of a similar size and magnitude.

However, it is not all gloom and doom because some of the losses which Boeing (NYSE:BA) is expecting will be made up by the military tanker KC-46A; it is a contract the company won recently and it has a total value of $52 Billion. Boeing (NYSE:BA) CEO Jim McNerney addressed an investor conference in July where he informed them about the company’s future roadmap.

The company is expecting annual revenue of around $30 Billion including all military contracts including a long range strike bomber, a Navy drone which is carrier base, and an Air Force trainer. However, the contract which the company lost to its rival around ten years ago is still costing the company. It is still trying to make up for the loss of $400 Billion and now this new military budget cut has come into picture.

Its rival Airbus (EPA:AIR) is facing a similar situation and is none the better as military projects are being reduced all around. Boeings (NYSE:BA) stock was up by 11% in 2013 however, this year it has dropped by 5.5% and there is still a quarter left in the year to end. Its P/E ratio of 19.59 indicates that the stock is overbought still.