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Embraer (ERJ) Teams Up With LHX to Upgrade KC-390 Millennium

Embraer S.A. ERJ revealed its strategic partnership agreement with L3Harris Technologies LHX to build an Agile Tanker aircraft, which will be an advanced version of the KC-390 Millennium tactical tanker aircraft, for the U.S. Air Force. The agreement is expected to support the U.S. Air Force in meeting operational imperatives and refueling needs in a contested mission area.

Details of the Agreement

As part of the agreement, Embraer and L3Harris will be involved in augmenting the operational capabilities of the KC-390 Millennium tactical tanker aircraft. The work involves upgrading the aircraft with advanced technology to make it efficient and sustainable in contested mission areas.

LHX and ERJ will be outfitting the aircraft with tactical network settings that will support the Joint All-Domain Command and Control requirements of the air force.

Benefits of the Upgrade

The KC-390 Millennium is a new-generation military multi-mission airlift aircraft. It brings unrivaled mobility, high productivity and operation flexibility at low operational costs on a single and unique modern platform.

The aircraft can refuel military aircraft with a variable speed drogue, receive fuel, and take off and land from short and improvised runways. These allow for greater mission area coverage.

The latest initiative by Embraer and L3Harris to upgrade the aircraft with meaningful and critical operational capabilities will increase its versatility and resiliency to perform in challenging mission areas. Moreover, Embraer’s state-of-the-art platform and systems, in combination with L3Harris’ mission-driven solutions, should make this next-generation aircraft more attractive for the air force.

This may result in a steady flow of contracts from Pentagon involving the upgraded KC-390 aircraft for Embraer, thus boosting its revenue generation prospects from defense businesses.

Growth Prospects

The continuously changing dynamics of the defense landscape and rising warfare challenges are propelling the demand for technologically advanced weapons and equipment. In this context, aerial refueling plays a vital role in military operations and may witness an increase in demand in the days ahead amid the current threat environment.

Per the report from MarketWatch, the global military aerial refueling tanker market size is likely to expand at a CAGR of 12.3% over the 2022-2030 period. Such abounding growth prospects may benefit Embraer, considering its capability in building the aircraft tanker, which suits military missions.

Other defense players that can enjoy the perks of the expanding aerial refueling tanker market size are as follows:

Boeing’s BA KC-46 features multiple layers of combat-ready defensive countermeasures to detect, avoid, defeat and survive threats. The KC-46A provides data and fuel to the joint force. Armed with data links and Advanced Battle Management System integration, the KC-46 connects multi-domain warfighters, providing tactical situational awareness.

The long-term earnings growth rate of Boeing is pegged at 4%. The Zacks Consensus Estimate for BA’s 2022 sales suggests a growth rate of 14.8% from the prior-year period.

Airbus’s EADSY A330 MRTT is the most capable new-generation tanker, which is combat-proven and comes with unique multi-role capabilities. The A330 MRTT can carry up to 111 tons of fuel and support the deployment of four fighter aircraft plus 50 personnel and 12 tons of freight in one direction.

Airbus has a long-term earnings growth rate of 12.4%. EADSY boasts an average earnings surprise of 53.9% in the trailing four quarters.

Price Performance

Shares of Embraer have risen 12.4% in the past three months compared with the industry’s growth of 1.1%.

Zacks Investment Research
Zacks Investment Research

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Zacks Rank

Embraer currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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The Boeing Company (BA) : Free Stock Analysis Report
EmbraerEmpresa Brasileira de Aeronautica (ERJ) : Free Stock Analysis Report
Airbus Group (EADSY) : Free Stock Analysis Report
L3Harris Technologies Inc (LHX) : Free Stock Analysis Report
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