Scorpion could be the right plane for the job
of replacing the A-10 "Warthog" -- and Textron may finally get a
sympathetic ear to make this argument.
Rich Smith
(TMFDitty)
Jul 7, 2017 at 4:07PM
It's been nearly four years since Textron (NYSE:TXT) unveiled
its new Scorpion
light attack fighter jet -- a revolutionary new warbird, designed and
built in record time with off-the-shelf parts, and costing just a fraction of
what taxpayers pay for most modern fighter jets.
Able to carry more than 9,000 pounds of ordnance between
its wings and internal weapons bay, flying at two-thirds
the speed of sound, and reaching altitudes of 45,000 feet, Scorpion should
be a Pentagon budget-cutter's dream. It's said to cost just $3,000 per hour to
fly, and less than $20
million a unit to buy. Yet to date, Textron hasn't
been able to sell a single one.
Friends in high places
Last week we learned that President Donald Trump will
nominate Textron Systems head Ellen Lord to become the Department of
Defense's new undersecretary of defense for acquisition, technology, and
logistics. If confirmed by the Senate, that would make her the Pentagon's chief
weapons buyer, responsible for allocating a Defense Department budget that
could reach $640 billion next year.
For Textron, the timing couldn't be more propitious.
Timing is everything
Right now, the Pentagon is considering spending $6
billion (or more) to buy a new light attack warplane to first supplement, and
later maybe even replace, its fleet of A-10 Thunderbolt II ground attack
fighters.
The
A-10 force, although invaluable in providing close air support today, is aging
and due for replacement. Historically, the Air Force has argued that new F-35
Lightning II fighter jets from Lockheed Martin can take over
the A-10's mission. But at a price tag of $95 million each, and costing more
than $67,000 per hour to fly, using stealthy fifth-generation strike aircraft
for ground attack seems kind of like overkill -- and uneconomical to boot.
Which brings us to the Air Force's latest solution,
dubbed the OA-X
project. Here, the Air Force is exploring the possibility of buying a light
attack fighter for close air support roles -- something probably less capable
than the A-10, which is no longer in production, but a whole lot less expensive
than Lockheed's F-35. Three planes are reported to be in contention for OA-X:
Embraer's A-29 Super Tucano and Textron's AT-6 Wolverine -- both slow-moving
turboprop aircraft -- and also Textron's Scorpion jet, a more capable ground
attack plane that could also fight air-to-air.
Judging from the price tag the Air Force is looking to
pay, and the capability it needs to buy, Textron's Scorpion appears to be
tailor-made for the OA-X role. And if the person who will soon be in charge of
buying weapons for the Pentagon hails from the same company that makes the
Scorpion, well, one imagines that she might be inclined to agree with that
assessment.
What it means for investors
At a valuation of just 0.9 times sales, Textron stock is
currently the only large defense contractor stock selling for less than its
sales -- my rule
of thumb for spotting bargains in the defense sector. It may not
remain this cheap for long, however, as it appears that I'm not the only one
thinking Textron may get a leg up in future Pentagon purchasing decisions.
One day after Trump made his pick for Pentagon
acquisitions chief known, shares of Textron stock were up nearly 4%.
Rich Smith has
no position in any stocks mentioned. The Motley Fool recommends Textron. The
Motley Fool has a disclosure policy.
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