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Boeing (BA), Kratos (KTOS) Could Gain Ahead, Can Win Small But Decisive Defense Contract For Long-Term Growth

The Boeing Company (BA) and Kratos Defense & Security Solutions (KTOS) have won contracts to build a new-generation strike drone under the Skyborg program. The limited scope of the contract can be misleading, but the Skyborg program itself is an important component of the future of a wide market for military technology.

Kratos will receive $37.8 million, Boeing $25.7 million and the private sector General Atomics $14.3 million as part of Skyborg. The contracts include the development by the US Air Force of UAV prototypes for demonstration. The sums of the contract are small, but the value can be decisive.

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This includes the development of a relatively inexpensive autonomous attack UAV. In order to conduct combat tasks without constant contact with a human operator, the aircraft must use software with elements of artificial intelligence. Simple tasks involving the destruction of all targets that are not defined as “own” and “neutral”, with modern levels of technology, and the number of UAVs will compensate for potential losses and failures.

This is, in general, a new step in military science’s evolutionary growth. In any dispute, thousands of UAVs can be stored in containers and used when needed. In this case, only the economic potential of the country which produces and uses these UAVs can decide military strength. For policymakers and the military, the idea is appealing, so major efforts will be made to incorporate it. The Pentagon already has a surplus of $400 million for this initiative, despite the fact that the first payments under the Skyborg program are not so big, and much more will be allocated in the budgets to come. At the same time, mass production will carry the winners of the competition tens of billions in the long term.

Kratos and Boeing have about the same chance of winning. The gain of Kratos is the presence of the Valkyrie drone XQ-58A, already flying and tested on landfills, which is similar to the idea of Skyborg.

Skyborg prototype deliveries are expected for May 2021, and Boeing has time for the aircraft to be designed. Also, if it finds it necessary to diversify the assembly and the technology used, the Pentagon can eventually select two suppliers at once.

Shares of The Boeing Company (BA) were up +0.42% to $219.69 on Wednesday, while that of Kratos Defense & Security Solutions (KTOS) were +0.65% to $26.25.

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