Boeing "Strikes" a Deal to Buy Revolutionary Heli-Plane Maker

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It's been about a year and a half since we first learned of the Defense Advanced Research Projects Agency's "LightningStrike Project," the scary-sounding name attached to an entirely benign story of a new class of aircraft that DARPA wants to build. With LightningStrike, DARPA -- the "mad scientist" arm of the U.S. Department of Defense -- aims to create an electrically powered airplane that can launch vertically (i.e., no runway required) but fly horizontally at ordinary-plane-like velocities.

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And now Boeing (NYSE: BA) will own that plane.

What is LightningStrike?

Let's start off with a few details about the project itself. LightningStrike is the brainchild of privately held aerospace company Aurora Flight Sciences, a specialist in the field of unmanned aerial vehicles, and one with a special affinity for developing electrically powered aircraft (i.e., no jet fuel required). As DARPA's partner on the project, Aurora was hired last year to design and build an aircraft equipped with 24 hybrid-electric fans, powered by one Rolls-Royce AE 1107C turboshaft engine driving three Honeywell electric generators.

The 24 fans will be mounted on two sets of wings -- six fans up front on one pair of forward wings and 18 more aft on a set of larger wings. These wings can pivot from full vertical to allow the fans to lift the aircraft at launch (and lower it for landing) to full horizontal when the aircraft is in flight, and will generate enough thrust to move the plane through the air at speeds from 345 mph to 460 mph.

Aurora has already completed Phase I of the LightningStrike project and entered into Phase II. A small-scale prototype of the plane conducted successful test flights earlier this year, and flight tests of a full-scale model (dubbed the XV-24A) are scheduled to begin next year.

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Will lightning strike twice? Thrice?

This is not the only thing Aurora Flight Sciences is up to. Already this year, the company has announced a partnership with Uber to develop electrically powered vertical takeoff-and-landing (VTOL) aircraft like LightningStrike for use in a future "drone" air-taxi service. Aurora hopes to have a small fleet of 50 such aircraft ready by 2020 for Uber to test-drive. (It's not known for certain whether Rolls-Royce and Honeywell will be powering those planes, but it seems a safe guess.)

Additionally, Aurora announced in August that it has signed a $499 million contract with the U.S. Air Force to support the latter's Aerospace Systems Air Platform Technology Research project, conducting research into "autonomy, electric propulsion, advanced manufacturing, multi-vehicle coordination, and advanced multidimensional optimization" for use in military drones. (To be crystal clear, not all of this money is going to Aurora. As the Pentagon made clear at the time, Aurora and Northrop Grumman will be splitting this award.)

Boeing swoops in

Given the string of successes Aurora has been racking up, it was no great surprise when Boeing announced earlier this month that it had decided to buy Aurora Flight Sciences -- lock, stock, and barrel.

Calling Aurora a "world-class innovator, developer and manufacturer of advanced aerospace platforms" that has "designed, produced and flown more than 30 unmanned air vehicles since the company was founded in 1989," Boeing confirmed on Oct. 5 that it will acquire Aurora. Boeing did not disclose how much it is paying, and the fact it didn't feel compelled to do so suggests the purchase price was not high enough to be "material."

So how much will Boeing pay? According to data from S&P Global Market Intelligence, Aurora Sciences has annual revenue of about $72 million. Now, in defense circles, the rule-of-thumb valuation for acquiring a company has historically been about one times annual sales (though in recent years, valuations have gotten somewhat out of whack). Still, we're probably talking about a valuation of only $100 million or $200 million here.

Even if the purchase price ends up being toward the high end of that range, (a) it's still going to be peanuts for a company of Boeing's size; and (b) it's probably an investment well worth making for Boeing. In acquiring Aurora Flight Sciences, Boeing will:

  • Make a huge leap forward in drones technology and significantly strengthen the capabilities it acquired with its purchase of Insitu back in 2008.
  • Nip in the bud a threat that (if Aurora and Uber succeed in their project) travel aboard big aircraft run by big airlines might become obsolete.
  • And secure Boeing's future as a military VTOL provider, in the event that Aurora's technology proves superior to the VTOL tech that Boeing and Textron build into their popular V-22 Osprey military aircraft.

Snapping up half of a half-billion-dollar defense contract along the way is just icing on the cake.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.