Crazy Sammy's Discount Fighter Jets

So you've got your eye on this sweet new ride -- an F-16 fighter jet to be precise -- but you're a little short on cash. What do you do?

Head on down to Crazy Sammy's Discount Fighter Jets, that's what. "No reasonable offer will be refused," not even if you want the fighters for free.

We beat any price
Over in Romania, the locals have run up against just this problem. Their fleet of Soviet-era MiGs is getting long in the tooth, and they're looking to upgrade with a couple of squadrons of Lockheed Martin's (NYSE: LMT  ) famous fighter. Uncle Sam is happy to oblige, with news reports saying it may offer the Romanians 24 secondhand F-16s for the low, low price of ... nuthin'.

Romania will need to invest about $1.3 billion in training, hardware upgrades, and modernization of its landing strips, however. So there's at least some potential for defense contractors to profit from this deal. The training component could generate sales for L-3 Communications (NYSE: LLL  ) , for example, just as the upgrades promise potential revenue for Raytheon (NYSE: RTN  ) and other makers of aftermarket parts. Presumably, Lockheed itself can generate some services revenue from the training component.

Turn back the odometer
Which will come in handy for Lockheed, because the Danish air force just discovered that its own F-16s aren't as obsolete as previously believed. A government report suggests the planes have two to four years more service left in 'em than previously thought. This will delay the planned Danish fleet upgrade until at least 2018. So sorry, Lockheed. You'll have to wait a bit longer for that next F-35 sale.

You want discounts? We got discounts!
Nor is this the only bad news for Lockheed. Remember the "fighter gap" Boeing (NYSE: BA  ) warned us about last year? The danger that F-16s and other previous-generation planes would soon be retiring en masse, before F-35s were available to replace them? (A risk that Goldman Sachs (NYSE: GS  ) , too, has tagged as substantial.) Boeing suggested the U.S. could fill the gap by buying a few F/A-18 Hornets to take the F-16s' place, and while the Pentagon quickly shot down that idea, it appears to have undergone a rethink.

Responding to Defense Secretary Robert Gates' concerns about cost control, Boeing has offered the Navy a sizable discount on bulk orders of F-18 variants, apparently piquing Pentagon interest. There's now talk of ordering anywhere from 124 to 200 Boeing fighters, equipped with General Electric (NYSE: GE  ) engines, to fill in while Lockheed gets its F-35 house in order.

Foolish takeaway
Every additional F-18 sale Boeing wins today is an F-35 sale Lockheed could lose tomorrow. Advantage: Boeing.

Boeing's stock has already more than doubled over the past year. How do you know when "the train has left the station" and it's too late to buy? Here's how.

Fool contributor Rich Smith has no position in any stocks named above. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 26, 2010, at 12:51 PM, jammer13 wrote:

    You're mixing apples and oranges when talking about F/A-18's and F-16's. The F-16 is a USAF aircraft; the F/A-18 is a carrier based USN aircraft. Furthermore there are three versions of the F-35 JSF: a convential takeoff and landing version for land operations for the USAF, a CTOL version for carrier based operations for the USN and a vertical takeoff and landing version for the US Marines. The JSF is already years behind schedule (also the cost has increased). The F/A-18's would be used to fill a gap caused by the Navy variant of JSF slipping, not to replace USAF F-16's.

  • Report this Comment On March 26, 2010, at 4:33 PM, TMFDitty wrote:

    Actually... you're absolutely right. I was trying to jam too many thoughts into a tight word-limit on the article, I fear.

    The real point is this: LMT needs F-35 revenues to replace revenue streams from the F-16 being phased out. The import of the F/A-18 purchases is really that they may deny LMT some of the F-35 revenues it was counting on, by filling up slots on aircraft flight decks.

    Thanks for pointing out the disconnect. I hope this is clearer now.

    TMFDitty

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