Boeing Lands $14.7 Billion Missile Seeker Contract from Lockheed Martin

Boeing (BA) has secured a massive $14.7 billion contract from Lockheed Martin for the production of PAC-3 Missile Segment Enhancement (MSE) seekers over the next seven years. The deal covers the guidance components of missiles used in the Patriot air defense system, which can counter ballistic missiles, cruise missiles, and aircraft. The contract will allow Boeing to triple its production capacity, driven by increased demand due to conflicts in Iran and Ukraine, which have strained U.S. weapons stockpiles.

In July, the U.S. Army awarded Lockheed Martin a $58.6 billion contract to boost PAC-3 production, and in January, Lockheed agreed to increase its yearly capacity to 2,000 units from about 600. However, industry executives caution that Congress has not yet funded these deals, which could limit Boeing’s ability to fully invest in parts and facilities until lawmakers act.

The contract is a significant boost for Boeing’s defense business, which has been improving. In the second quarter, Boeing Defense, Space & Security revenue rose 13% to $7.5 billion, with $7 billion in new orders and an $85 billion backlog. However, margins remain thin, with a negative 0.2% margin after a $280 million charge on the VC-25B program. Management expects margins to improve to high single digits by the end of the decade.

The wider company is also gaining ground, with total revenue up 8% to $24.6 billion and positive free cash flow of $631 million. Boeing’s total backlog stands at a record $715 billion. Investors will be watching to see if Congress funds these deals and how Boeing manages its fixed-price defense programs, which have caused charges in the past.