Two customers would both very much like to buy F-16s. The only
problem: They're currently shooting at each other.
Rich Smith
(TMFDitty)
Sep 16, 2016 at 10:13AM
Lockheed Martin's (NYSE:LMT) F-16 fighter is -- by a large margin -- the most popular fighter jet in the
world. Across the country and around the world, Lockheed Martin has sold more
than 4,500 F-16s over the past 40 years -- half of which are still flying
today.
But
now, at long last, the F-16 era may be approaching a close.
Lockheed
is reportedly moving to shutter production of the F-16 at its facility in Fort
Worth, Texas, next year, and production numbers are already dwindling. Lockheed
Martin's quarterly filings with the SEC show that the company delivered
just three F-16s last quarter, two the quarter before that, and two the quarter
before that. At
its current rate, the company is on course to build just 10 F-16s this year,
fewer than the 11 F-16s built last year, and the 17 manufactured in 2014.
By
all indications, the era of F-16-building is ending -- except for one
thing...or maybe two.
To India,
with love (for the F-16)
You've
probably heard by now that India is in the midst of a multiyear plan toupgrade its armed forces. As part of that
effort, India placed an order for 126 high-end Dassault Rafale fighters back in
2011 -- but it later backed out of that deal. Now, India is negotiating with
the United States instead, and looking to have Lockheed Martin shift F-16
production to India once it closes down in Texas.
Such
a shift could conceivably breathe new life into Lockheed's F-16 program. Here
in the U.S., Lockheed Martin is currently focused on getting the F-16's
successor,the F-35 stealth fighter, ready for prime
time. At the same time, though, a shift in production to India could help
Lockheed win new sales among customers who cannot afford the fifth-generation
F-35 -- but who could conceivably afford the
fourth-generation F-16.
Winning
the Indian contract could generate billions in new revenue from the old
warbird. What's more, assuming lower costs of production in India than in the
U.S., Lockheed could find that by producing the F-16 abroad, it will open new
markets for the F-16 elsewhere in the region.
The enemy of my friend is also my friend
Not everywhere in the region, though. As it
turns out, one monkey wrench could trip up Lockheed's effort to dominate both
the high and the low ends of the international market for fighter jets, and it
lies right across the border from India. Earlier this year, you see, Pakistan
made a bid to buy nearly a full year's worth of Lockheed's (now diminished)
F-16 production, asking Congress for permission to buy eight new F-16s for its
air force. Pakistan had hoped to obtain discounted rates on these aircraft
($270 million up front, versus the full sticker price of $700 million for the
planes).
Now,
Congress declined to green-light this particular deal. But Pakistan likes the
F-16 so much
that, undeterred, it approached Jordan instead, with an offer to buy 16 used
F-16 fighter jets from the Jordanian military. The deal's not yet set in stone,
but if Jordan approves, these fighters would join 14 used F-16s that Pakistan
bought from Jordan two years ago.
What it means for Lockheed
Now,
you might think that Lockheed Martin's move to begin producing F-16s in India
would offer a neat solution to this problem, lowering the price of F-16
production, and making it easier for Pakistan to buy new F-16s instead of old
ones. Thus the money Pakistan was preparing to hand over to Jordan could flow
into Lockheed Martin's coffers instead.
But
here's the problem: India and Pakistan, while both U.S. allies, don't like each
other very much. In fact, just last week, the Indian government accused
Pakistani troops of violating a ceasefire along the countries' mutual
"Line of Control" in Kashmir. Pakistan's army, says India, began
"unprovoked and indiscriminate firing on Indian army posts" in what
the India Times calls the second ceasefire violation
in less than a week.
One
imagines that these and similar conflicts within the region would tend to
hinder Lockheed's ability to export F-16s from India, even to other markets in
the region that would very much like to buy the F-16.
Then
again, with Pakistan wanting to buy eight F-16s, but India in the market for as
many as 126, at least you can say this much: If Lockheed Martin does end up
shifting F-16 production abroad to take advantage of continuing demand in the
region, it has clearly picked the more lucrative side of the border to set up
shop.
Original
post: Motley Fool
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