When it comes to attack planes, Lockheed Martin's (NYSE: LMT ) F-35, a fifth-generation fighter, is supposed to be a technological masterpiece. However, Boeing (NYSE: BA ) argues that its fourth-generation EA-18G attack plane, aka the "Growler," has the edge when it comes to evolving threats across the electromagnetic spectrum.
In fact, Boeing is using this argument to convince lawmakers to add 22 Growlers to the Defense Department's 2015 fiscal budget. But will it work? If it does, will the added expense take a bite out of the F-35 budget?
The battle begins
Currently, the Defense Departments 2015 budget doesn't included funding for the Growler. More importantly, Military.com reports that if the DoD doesn't include funding for the Growler, Boeing may have to shut down its production line in Missouri.
Understandably, Boeing is arguing that it's a mistake not to include funding for its Growlers, because without it, the F-35 will be vulnerable to detection. Additionally, Breaking Defense reports that Navy and Boeing officials believe that without the Growler, the F-35 can't be expected to survive attack missions at the start of a war.
The reason for this, Boeing believes, is that search radars have advanced to the point where stealth is being outpaced. So, while the F-35 is a stealth aircraft, Breaking Defense reports, "Infrared sensors, low and variable frequency radar, and networked radar and other sensor systems built or used by Russia and China make spotting a stealthy aircraft a virtual certainty."
Lockheed fights back
In response to Boeing's attack, Lockheed spokesman Michael Rein, told Military.com: "The stealth capabilities in the F-35 are unprecedented in military aviation. ... Extensive analysis and flight test of the survivability of the F-35 with its combination of stealth, advanced sensors, data fusion, sophisticated countermeasures, and electronic attack demonstrate conclusively its superior advantages over earlier generation aircraft." In other words, Boeing is wrong according to Lockheed.
Who will win?
What this fight basically boils down to is funding. Thanks to automatic budget cuts, otherwise known as sequestration, defense companies are feeling the pinch. For example, the Pentagon requested $8.3 billion for 34 F-35s. While that's a significant number, it's eight less than the Pentagon planned on.
The same can be said for Boeing. Right now the 2015 Defense budget doesn't include funding for the Growler. However, Boeing is trying to persuade lawmakers to add around $2 billion for the additional Growlers. If Boeing's efforts work, that money would have to come from somewhere, or something, else in the budget.
What to watch
Reduced government spending isn't great for defense contractors. The good news is, most of Boeing's sales, and backlog, are due to its commercial airline business segment -- and it's doing pretty well. Lockheed, on the other hand, gets a significant amount of its revenue from defense sales -- in 2013, 82% of Lockheed's $45.5 billion in net sales were from the U.S. government -- the same can be said for Lockheed's backlog. Further, considering the F-35 made up 16% of Lockheed's total consolidated net sales in 2013, anything that negatively, or positively, affects this program is something investors should keep close tabs on. Consequently, investors would do well to keep an eye on the debate about the Growler and the F-35.
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