Is Boeing's New Submarine-Destroying Warplane a $35 Billion Bust?

Pentagon report suggests the new P-8A Poseidon can't fulfill its two main missions.

Feb 1, 2014 at 7:30AM

Boeing's P-8A Poseidon. Source: U.S. Navy.

Boeing (NYSE:BA) designed its P-8A Poseidon warplane to accomplish two missions: scout out wide areas of water, and track down and destroy dangerous enemy submarines gliding beneath it. But a new report out of the Pentagon suggests that Poseidon is failing at both jobs.

According to the Pentagon's chief weapons tester, director of operational testing and evaluation Michael Gilmore, the performance of six Boeing P-8As deployed to Japan from September 2012 to March 2013 has revealed "major deficiencies" in the warplane. Gilmore noted that Poseidon's Raytheon (NYSE:RTN)-built radar shows "limitations for some targets." Additionally, the plane's Northrop Grumman (NYSE:NOC)-built electronics provide only "limited threat detection" against enemy anti-aircraft radars.

Overall, Gilmore concluded that the Poseidon was "not effective for the intelligence, surveillance, and reconnaissance mission and is not effective for wide area anti-submarine search." For a program that is expected to cost U.S. taxpayers upwards of $35 billion to purchase 117 Poseidons -- and that Boeing hopes will bring in billions more from dozens of international sales at price tags of $299 million a pop -- this is discouraging news.

Opinions may differ
But not everyone agrees with the report. U.S. Navy 7th Fleet commander Vice Admiral Robert Thomas, for one. He's on record saying the P-8A "represents a significant improvement" over the Navy's older Lockheed Martin (NYSE:LMT) P-3 Orion subhunters, and is able to "detect, track, and report on more targets" than the Orion can.


P-8A Poseidon deploying a MK-46 anti-submarine torpedo. Photo: Wikimedia Commons.

Undersecretary of Defense for acquisition, technology, and logistics Frank Kendall agrees, calling the P-8A Poseidon a "good product." Sure, it would be better to have a "great" product. But the Poseidon wasn't expected to be great right out of the box. Kendall explains that "the plan was to develop a certain set and field a certain set of initial capabilities for local anti-submarine warfare capabilities and then add capabilities to that in increments." Going forward, Boeing's plan is to gradually introduce upgrades that will improve the plane's anti-submarine warfare capability "over several years."

Sky-high hopes, baby steps
Meanwhile, even if the Pentagon's report sounds critical of the Poseidon, it does admit that the plane is effective in providing small-area searches similar to the P-3C Orion it's replacing. The report confirms that the P-8A can, in fact, conduct "unarmed anti-surface warfare missions" and, indeed, does effective "all-weather surface target search." Plus, it offers "significant improvements in hardware reliability, maintainability, and availability" over the P-3, as well as "increased range, payload, and speed" in comparison with the P-3C Orion.

The plane Poseidon is replacing: Lockheed's P-3C Orion -- exiting, stage left. Photo: U.S. Navy.

Where work still needs to be done, therefore, is in the area of underwater sub-hunting. But while improvements still need to be made, it sounds like the P-8A Poseidon is at least "good enough" for the Navy and enjoys the service's support. And at the risk of damning with faint praise, at the very least the Poseidon is incrementally better at finding subs than the Orions it is replacing -- and getting better with each round of upgrades.

For Boeing investors, that's the really the important part: As Poseidon is better than the alternative, and extending its lead over time, this $35 billion weapons program should be safe. 

Oh, and one more thing
Did I mention that Boeing pays its shareholders a 2.1% dividend yield? Mustn't forget that bit -- because over time, generous dividend-paying stocks like Boeing can make you rich. While they don't garner the notability of high-flying tech stocks, dividend-paying stocks are also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes torock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Raytheon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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