Sierra Nevada Corporation (SNC) is one of America's lesser-known privately owned makers of military hardware -- even though it makes everything from ground vehicles to airplanes to spacecraft. It's not a large company. According to our good friends at S&P Global Market Intelligence, SNC has only about 5,000 employees, only a few more than work for drone-maker Kratos Defense & Security, and just a tiny fraction of the workers at aerospace giant Boeing (BA 1.34%).
And yet last month SNC beat out Boeing to win a contract to build the "Doomsday" airplanes that protect U.S. presidents and defense secretaries in time of war.
Image source: Getty Images.
Doomsday -- but in a good way
SNC's new Air Force contract hires the defense company to supply four new aircraft to replace USAF's existing fleet of E-4B Nightwatch Advanced Airborne Command Posts (AACP) by July 2036. And that's just to start with. The contract, valued at $13.1 billion, could more than double in size if the Air Force follows through on its plans to eventually buy between eight and 10 of the planes over time.
While Sierra Nevada is itself a defense manufacturer, it's likely to buy commercial airplanes from another manufacturer -- maybe even Boeing itself -- and then heavily modify them to perform their Doomsday functions, hardening them against electromagnetic pulses for example, installing advanced sensors and communications gear, and utilizing other technology.
What it means for Boeing
Boeing itself may end up serving as a mere subcontractor on SNC's contract, after being eliminated from the AACP competition in December. As Reuters reported last year, Boeing refused to agree to a fixed-price contract to build the airplanes. That's understandable, seeing as Boeing has reported losses of $16.3 billion on 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 CFO Brian West, Boeing has decided to pass on future defense contracts when winning them would require it to commit to fixed prices. On the plus side, that's probably a good policy if winning these contracts would entail losses for Boeing.
On the other hand, it seems almost certain to mean Boeing's status as a major defense contractor is going to decline over time.
What it means for SNC
But what does this contract mean for SNC and its future as a defense contractor?
As I pointed out last year, SNC recently raised $290 million in private investment for its space company subsidiary Sierra Space. The valuation on that capital raise implied that SNC's space division alone is now worth more than $5 billion -- making it one of the biggest space unicorn stocks on the planet. It also laid the groundwork for what could be a fabulously successful initial public offering, if Sierra Space succeeds in launching its Dream Chaser spaceplane to the International Space Station later this year, and SNC then follows through on its plans to IPO the subsidiary in 2025.
All of that, however, was before Sierra Space's parent company landed one of the biggest defense contracts in recent memory, and beat out one of the nation's biggest defense contractors in the process. Now I kind of have to wonder if Sierra Nevada Corporation should be considering an initial public offering!
Mind you, to date there's been no indication whatsoever that SNC's husband-and-wife owners, Fatih and Eren Ozmen (respectively the CEO and chairwoman of the company) are interested in selling, or in sharing ownership with a bunch of individual investors. But the thought must be crossing their minds right about now.
In 2022, SNC was reported to have annual revenue of $2.2 billion. The AACP contract, by adding $13.1 billion across 12 years, probably raises that annual revenue number by nearly 50% -- a big jump that would be guaranteed to attract interest in any IPO they might contemplate.
If SNC's owners are interested in doing an IPO, all I can say is that the iron is looking awfully hot at this point. If they're going to "strike," then now's the time to do it -- while excitement over the AACP contract is high, and before anyone gets around to wondering: If Boeing didn't think it could earn a profit on this contract, what's the chance that SNC might end up losing money on it as well?
