Sierra Nevada Corporation (SNC) is one of the lesser-known private U.S. military manufacturers, although it makes everything from land vehicles to airplanes to spacecraft. It’s not a big company. According to our good friends at S&P Global Market Intelligence, SNC only has about 5,000 employees, which is a bit more than the drone maker employs. Kratos Defense and Securityand just a tiny fraction of the aerospace giant’s workers Boeing (NYSE:BA).
And yet, last month, SNC beat out Boeing to win a contract to build the “Doomsday” planes that protect U.S. presidents and secretaries of defense in times of war.
Doomsday – but in a good way
SNC’s new Air Force contract commits the defense company to supply four new aircraft to replace the USAF’s existing fleet of E-4B Nightwatch advanced airborne command posts (AACPs) by July 2036. And It’s only a beginning. The contract, valued at $13.1 billion, could more than double if the Air Force follows through on plans to buy between eight and 10 planes over time.
Even though Sierra Nevada is itself a defense manufacturer, it is likely to buy commercial planes from another manufacturer — perhaps even from Boeing itself — and then heavily modify them so that they fulfill their Doomsday functions, hardening them against electromagnetic pulses, for example, installing advanced sensors and communications. equipment and using other technologies.
What this means for Boeing
Boeing itself could end up being just a subcontractor on SNC’s contract, after being eliminated from the AACP competition in December. As Reuters reported last year, Boeing refused to accept a fixed-price contract to build the planes. This is understandable, given that Boeing reported losses of $16.3 billion on the fixed-price contracts it signed with the Pentagon over the past decade. But it’s probably still a disappointment for the company’s shareholders.
According to Chief Financial Officer Brian West, Boeing decided to pass on future defense contracts even though winning them would require committing to fixed prices. On the plus side, it’s probably a good policy if getting these contracts results in losses for Boeing.
On the other hand, it seems almost certain that Boeing’s status as a major defense player will decline over time.
What this means for the SNC
But what does this contract mean for SNC and It is future as a defense contractor?
As I highlighted last year, SNC recently raised $290 million in private investment for its subsidiary Sierra Space, a space company. The valuation of this capital raise implied that SNC’s space division alone is now worth more than $5 billion, making it one of the largest space unicorn stocks on the planet. It also laid the groundwork for what could be a fabulously successful IPO, if Sierra Space succeeds in launching its Dream Chaser spaceplane to the International Space Station later this year, and if SNC then follows through on its plans to IPO of the subsidiary in 2025.
However, all of this happened before Sierra Space’s parent company landed one of the largest defense contracts in recent memory and beat out one of the nation’s largest defense contractors in the process. Now I kind of have to wonder if Sierra Nevada Corporation should consider an IPO!
Please note, to date, there is no indication that the husband and wife owners of SNC, Fatih and Eren Ozmen (respectively CEO and president of the company), are interested in selling or sharing ownership with a group of individual investors. But that thought must be crossing their minds right now.
In 2022, SNC would have achieved annual sales of $2.2 billion. The AACP deal, adding $13.1 billion over 12 years, would likely increase that annual revenue by nearly 50% – a significant jump that would be guaranteed to generate interest in any IPO they might consider .
If the owners of SNC are interested in doing an IPO, all I can say is that the iron looks awfully hot at this point. If they want to “strike,” then now is the time to do so – while enthusiasm for the AACP contract is high, and Before everyone is wondering: if Boeing didn’t think it could make a profit on this contract, how likely is it that SNC would also end up losing money on this contract?
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Maybe This Should Be the Next Defense Company to Go Public was originally published by The Motley Fool
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