Third quarter strength

Departments - From the Flight Deck

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December 7, 2020

COVID-19’s resurgence is rapidly dimming expectations for holiday travel in yet another blow to hard-hit civil aviation. Positive news that the Federal Aviation Administration (FAA) has created a pathway to return Boeing’s 737 MAX to service and that several coronavirus vaccines promise to be more than 90% effective in curbing the disease won’t help commercial aerospace this year, nor early next.

Military spending, especially by the U.S. government, has been more reliable during the pandemic, buoying companies with strong defense portfolios. If you need any evidence, third-quarter results from prime contractors showed surprising strength and stability.

While revenues for Boeing Defense, Space & Security decreased to $6.8 billion for the quarter – down from $7 billion the same quarter last year for reasons unrelated to the pandemic – it’s still a better performance than Boeing Commercial Airplanes, where revenue decreased 56% (to $3.6 billion) compared to Q3 2019.

Boeing continued to receive contracts for its F-15EX fighter jet for the U.S. Air Force, MH-47G Block II Chinook helicopters for the U.S. Army, and service life extension for U.S. Navy F/A-18 Super Hornets. The backlog at Boeing Defense, Space & Security at the end of the third quarter was $62 billion, of which 30% represents foreign sales.

Airbus, better known for its airliners, ranks among the top 10 global defense companies. Despite an 11% decline in revenue vs. Q3 2019, Airbus Defence and Space’s order intake increased to $9.7 billion in Q3 2020. Its products include the Eurofighter; A330 MRTT tanker/transport; A400M and C295 military airlifters; and command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR).

Pure defense companies fared better. Lockheed Martin reported sales of $16.5 billion for the third quarter, up from $15.2 billion in Q3 2019. The company’s backlog hit $150.4 billion, a record.

Northrop Grumman had a record third quarter, with sales increasing 7% to $9.1 billion from $8.5 billion in Q3 2019. Its free cash flow increased 22% to $1.1 billion and total backlog increased to a record $81.3 billion. Management raised its 2020 guidance and now expects sales of $35.7-to-$36.0 billion. Its products include the autonomous RQ-4 Global Hawk and Triton drones, plus the B-21 Raider long-range bomber replacement for the B-2 Spirit.

Strong defense spending helped Raytheon Technologies achieve third quarter sales of $14.7 billion, contributing to a $70.2 billion backlog. It’s more difficult to compare quarter to quarter since the April merger of Raytheon Intelligence & Space and Missiles & Defense with United Technologies’ Collins Aerospace Systems and Pratt & Whitney, but clearly, defense has proven a solid revenue stream.

Third-quarter numbers show defense spending is helping sustain the aerospace industrial base while the commercial sector languishes. The cash infusion has been an industry lifeline. Ironically, this spending has been immune to contentious Congressional debate – unlike measures to extend the Coronavirus Aid, Relief, and Economic Security (CARES) Act to airlines and civil aviation. – Eric