Boeing’s Phantom Eye Takes Ford Aloft

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While the release of Boeing’s (NYSE: BA) Phantom Eye HALE (High Altitude, Long Endurance) aircraft is not breaking news, with the sequestration element of the fiscal cliff debate being so critical, revisiting the subject seems appropriate. Furthermore, as the craft is powered by two modified Ford (NYSE: F) Ranger engines whose only byproduct is water, the alternative energy discussion has the opportunity to make an appearance in this story as well. Finally, with Veteran’s Day just over our collective shoulders, acknowledging an advance that has the potential to keep troops out of harm’s way seems like a fitting tribute to the men and women who keep us safe. Ultimately, while the Phantom Eye is but one offering from the mighty Boeing, it serves as a nice draw to a stock that should be in your core portfolio.

Boeing & Sequestration

A major element of the impending fiscal cliff that will see tax hikes, spending cuts and the ushering in of the next recession – if the “experts” are to be believed – is sequestration. Under the plan, if legislators were not able to agree to $1.2 trillion of spending cuts, automatic decreases would go into effect; these cuts included $500 million in defense cuts on top of the $497 million of cuts that were already planned for the next decade. To the utter amazement of everyone who is not a member of Congress, the parties were not able to reach an agreement.

What all of this has to do with Boeing is that many of the defense cuts will have an impact on major defense contractors. Cuts will impact companies including Northrop Grumman (NYSE: NOC), Lockheed Martin (NYSE: LMT), Raytheon (NYSE: RTN) and Boeing. While the industry has been bracing for this development, individual companies are feeling the impact in different ways. Through the end of the summer, Northrop and Lockheed had performed well, each citing U.S. government projects that had been retained. Raytheon was not as strong through the summer, but has been less since the election, down about 5% since Nov. 6 (see chart). In that same period, Lockheed has shed 6.75%and Northrop is down over 9%; Boeing is off by just 1.75%. The takeaway seems to be that those contractors that performed the best year-to-date are giving back gains as the situation gets more real. Here, again, is where Boeing's commercial division protects it.

<img src="http://media.ycharts.com/charts/356c4b687b7a485a17865a28c77b5cfc.png" />

BA data by YCharts

Boeing is distinct from its peers, however, in the sense that its commercial aircraft business has provided a major source of insulation from decreased spending concerns. As one of the company’s most critical divisions, it adds a revenue stream that will be largely unaffected by the fiscal cliff, whether we all tumble over or not. While a solution to sequestration, as well as the fiscal cliff overall, is expected, Boeing is better positioned than its peers to weather the storm if no compromise is reached.

A Flying Ford

Darryl Davis, President of Boeing Phantom Works explains why the aircraft can be considered environmentally responsible: the Phantom Eye uses “a Ford Ranger truck engine converted to burn liquid and gaseous hydrogen. It is something that was pioneered by Ford about a decade ago.” The aircraft is capable at traveling at speeds of up to 150 knots and remaining aloft for as long as three days; an even larger version of the HALE with a ten-day mission requirement is already under development. With the aircraft’s endurance, the Boeing division believes that the plane may eliminate the need to “base aircraft in theater.”

Beyond the obvious military applications, and added security that such an aircraft can provide to U.S. troops, the application of the hydrogen emissions system may have extended applications. While the technology was developed a decade ago, as current pushes are made for alternative energy sources, such an endorsement may serve as a positive catalyst for new projects at Ford. Monitoring such developments may give you an early insight into important advances.

The Trade

While the Phantom Eye was originally rolled out last spring, the political landscape makes now a good time to revisit such lofty news. Heading into the increasing tension of sequestration and the fiscal cliff, Boeing is well positioned to perform. The stock looks very attractive at current levels and is a buy for your core portfolio.


Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford, Lockheed Martin, Northrop Grumman, and Raytheon Company. Motley Fool newsletter services recommend Ford. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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