Boeing Bags a Big 1, and Lockheed Does, Too ($30 Billion Boeing Deal with Saudi Arabia)

Motley Fool ^ | January 3, 2012 | Rich Smith

[lbryce]

As most of America was preparing to flip its calendars last month, two defense contractors were hitting afterburners -- and blasting into the new year. Last week, the U.S. and Saudi Arabian governments finalized their contract for the sale of nearly $30 billion worth of fighter jets manufactured by Boeing (NYSE: BA ) . The deal includes an agreement that could lead to Saudi Arabia buying 84 F-15SAs and upgrades for another 70 F-15Ss.

Of course, Boeing is not the only company that will benefit from this deal. General Electric (NYSE: GE ) will build two of its F110 engines for each of the 84 F-15SAs. If you consider that Saudi Arabia paid $750 million for 156 of the same F110 engines from GE in 2007 and 2008, this contract will likely be worth even more than that, making it a significant sale even for a huge company like GE. This deal, as you may recall, lay at the core of the biggest foreign arms sale in recent memory, an agreement that included everything from United Technologies Black Hawk helicopters to General Dynamics warships.

It was not, however, the only big defense deal making headlines last month. Just a couple weeks earlier, we learned that Japan had chosen Boeing rival Lockheed Martin (NYSE: LMT ) to provide it with 42 fifth-generation F-35 stealth fighter jets, part of a major upgrade of Japan's Self Defense Forces.

Devils in the details Figuring out which of these deals is "bigger" is no easy task. Reportedly, Lockheed's deal involves 42 aircraft, valued at more than $7 billion. But considering that the F-35 is a more advanced fighter jet than the F-15, you'd expect it to cost more.

[lbryce]

Whatever economic merits, benefits the deal may have, and there are many, IMO, it is overshadowed by one consummated with the likes of those complicit in what is arguably one of the worst days in America history.

[taildragger]

Oh that sucks, they went with GE instead of Pratt Engines. I revile GE.... Let the flame wars begin...

[Hillarys Gate Cult]

No argument from here on that one. Always liked P&W better and have seen little over the years to change that.

[Dilbert56]

Sat next to a GE aircraft engineer on a flight about ten years ago. He told me that if you went back to the beginning of the GE/PW rivalry, the US government had bought exactly 50% from each manufacturer and alternated buys to keep it as close to 50/50 as possible.

Understand this is Saudi Arabia but I wonder if DOD is still guaranteeing equal outcomes in this business.

[Hillarys Gate Cult]

I want everyone to understand that I don’t think GE makes bad or unreliable engines, just that in a head to head competition, Pratt will win most times. P&W is a better quality product.

The 50/50 rule is still in place last I heard. If GE had to “sing for their supper” for every contract, without that deal they might have been out of the jet engine business long ago, at least for fighter planes.