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

Www
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.

G

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.

Www
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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers