Donald Trump is making waves at the Pentagon -- again!
By now you've all heard about President-elect Donald Trump and his government-by-tweet initiatives to get Boeing (NYSE:BA) to cut the price of Air Force One, and persuade Lockheed Martin (NYSE:LMT) to lower the cost of its F-35 stealth fighter jet, by criticizing their sticker prices on Twitter.
As a negotiating tactic, the effort has merit. It embarrasses the president-elect's negotiating partners and gives them incentive to offer concessions, without requiring Trump and the taxpayers he will soon represent to make any concessions of their own. But in his latest social media salvo, President-elect Trump may have gone a bit too far.
Last week, the soon-to-be-president challenged Boeing to produce "a comparable F-18 Super Hornet" at a price better than Lockheed Martin's F-35 -- which is curious. There is no such thing as a fourth-generation F -18 Super Hornet from Boeing that is comparable to a fifth-generation F-35 Lightning II from Lockheed.
Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!— Donald J. Trump (@realDonaldTrump) December 22, 2016
Fourth-generation apples and fifth-generation oranges
True, from a cosmetic viewpoint, both Boeing's F/A-18 and Lockheed's F-35 are fighter jets. Both planes have two wings, two vertical stabilizers and... fly. But that's about where the similarities end.
Boeing's F/A-18 is a fourth-generation warbird, designed for an era in which the U.S. would command air superiority from the get-go in almost any conflict. It operates at a quick tempo, picking up bombs and missiles from an aircraft carrier and delivering them to a target, with quick turnaround times. The F/A-18 doesn't worry about stealth, because it ain't got time for that -- it's got bombs to drop! But if you light up an F/A-18 with radar, it looks exactly like what it is -- a fighter jet -- and is relatively easy to track and target.
Lockheed Martin's F-35, on the other hand, is a fifth-generation fighter, designed to combat advanced 21st-century opponents possessing robust air defenses. The F-35's radar absorbing skin and curious configuration make it invisible to radar. While certain very-high-frequency radars may be able to detect it, the plane's radar cross-section on fire control radars is similar in size to a golf ball -- too small for fire control radar to lock onto it and guide a missile all the way to contact.
Simply put, an F-35 is designed to survive threats that would take down an F/A-18. Thus, in modern warfare, F-35s would be deployed first to penetrate and take down an adversary's air defenses, after which the F/A-18s would swoop in to finish the job. The planes are thus complementary, not comparable.
So is Donald Trump completely off his rocker? And if he isn't, what might Trump's F-35 tweet mean for Boeing and Lockheed Martin, and for their investors?
Making defense policy -- 140 characters at a time
Here's my take: The president-elect cannot be off his rocker, because the differences between Boeing's F/A-18 and Lockheed Martin's F-35 are too glaringly obvious for anyone to make a mistake this big, and this publicly. In addition to the differences noted, the U.S. Navy and Marine Corps are currently the only services using Boeing's F/A-18, so the plane could not possibly be used to replace the 1,750-odd F-35A stealth fighters that the Air Force plans to buy -- just the 520 or so F-35-Bs and -Cs on order by the Navy and Marines.
Of course, the president-elect couldn't go into all of these details in a 140-character tweet. But what might he have said if he had a bit more room to expand on his idea of a comparable F-18 Super Hornet, and what would the implications be then for investors?
What it means to investors
There are a couple of possibilities. For one, Boeing has for some years been working on design changes to the F/A-18 that the company contends would make it stealth-like -- if not completely stealthy. While Lockheed Martin would argue this is not comparable to its F-35, Trump may argue that Boeing's improvements are good enough to compete with the F-35 -- at the right price.
Alternatively, Trump may be referring back to Boeing's X-32 aircraft, the stealth fighter Boeing entered in the Joint Strike Fighter competition back in 2001 -- the plane that ultimately lost to Lockheed Martin's F-35.
As you recall, back then, the Pentagon had asked both companies to bid a plane they thought they could build for about $35 million a copy (in 1994 dollars). Arguably, Lockheed broke that bargain when, after winning the competition, it hiked the F-35's cost up to the $100 million or so a copy that the plane costs today. But if Boeing could dust off its plans for the X-32 and build the Air Force a stealthy fighter for something closer to the original asking price, that might be something that would interest Trump -- and Boeing -- very much. Thirty-five million dollars in 1994 dollars would be $57 million today, or about half the price that Lockheed is charging for the F-35. Granted, it would take Boeing significant investment to update its 2001 design and bid a new price on such a comparable F-18 (i.e., the X-32).
But with the prospect of reintroducing competition to the fighter jet industry, and potentially hundreds of billions of dollars in Pentagon contracts at stake, Boeing just might bite.