Rolls-Royce Holdings PLC (LSE:RR.) might get some much-needed good news this month depending on where the US government decides to place an order for its next generation of helicopters.
If the Bell V-280 helicopter wins, the order might be worth about 5p per share to Rolls-Royce, according to analysts at Citi.
Rolls-Royce will power the Textron Bell V-280 tiltrotor, which is competing against the Sikorsky - owned by Lockheed Martin - SB-1 Defiant for the Future Long Range Assault Aircraft (FLRAA) program. The new craft will replace the UH-60 Blackhawk in the US Army and US Marine Corps.
According to the CBO (Congressional Budget Office), the US military has 4,300 helicopters of which 2,300 are Blackhawks – it is the largest fleet of helicopters in the US military.
Citi says the maximum price per helicopter is US$43mln and it estimates the engines to be about 20%-30% of the value or US$8mln-10mln as there are two engines.
A like-for-like replacement program is not expected, but 1,000 aircraft would amount to US$40bn in total and a US$8bn-10bn production program for Rolls.
JP Morgan, however, is still unconvinced about Roll’s’ prospects even with a decent tailwind from the weak pound.
The US bank estimates Rolls is in for potentially “a very big FX transaction uplift” in defence and power systems if can lock in the current £/$ dollar exchange rate.
But the bank thinks challenges abound, notably the impact of a recession on its end markets, while Rolls is still the most indebted company in European aerospace and defence.
'Underweight' with a 60p target price is the JP Morgan's view.