The U.S. Air Force wants to kill the A-10 Thunderbolt II. Really, really, really wants to.
Described alternately as the "most survivable plane ever built" and "the best close air support plane ever designed," there's no denying the A-10 has a lot of fans. On Facebook, some 11,000 supporters have "liked" a page tagged "Save the A-10."
Mother Jones describes the plane like this: "Imagine an unstoppable commercial Learjet with a full-automatic cannon in its nose and an iron bathtub surrounding the cockpit. That gives you some idea of the A-10's appearance and performance." Designed to be a Soviet tank-killer, the A-10 has proved itself instrumental in combat operations in Iraq and Afghanistan, achieving an 85% mission success rate in Iraq.
In contrast, the plane that's meant to replace the A-10 -- and many other weapons platforms besides -- is Lockheed Martin's (NYSE:LMT) F-35. Mother Jones mocks the F-35 as "a gold-plated aircraft" that's "supposed to be an air fighter and a ground attack plane, but doesn't perform particularly well at either task."
So why is the Air Force trying to kill its "good" plane in favor of the not "particularly" good one? Basically, because the "gold-plated" F-35 costs so much that there's no money left over for the A-10.
Cheaper and better lose out to more expensive and worse
As early as we are in the F-35 program, it's hard to say precisely how much Lockheed's vaunted joint strike fighter will ultimately cost. At the macro level, some say the program could consume $1.1 trillion over the course of 60 years. Zoom in a bit, and the per-plane cost could be $80 million -- or $150 million.
What is clear is that the A-10 Warthog's unit cost of about $20 million (in 2013 dollars), makes it a much cheaper ground attack aircraft than the F-35.
But even so, the Air Force estimates it will cost about $700 million per year to maintain and operate its 326 A-10s over the next five years. That's $700 million it would prefer to pour into the F-35 program if at all possible. But for that to happen, the A-10 has to die.
The A-10's defenders are not thrilled with this plan. In Congress, fans of the plane, including Sen. Kelly Ayotte of New Hampshire (whose husband flew the A-10 in Iraq), have mounted an effective defense of the plane's funding. So effective, in fact, that this past week, the Air Force revealed that it's considering alternate scenarios to save money in the event the A-10 survives.
Specifically, DefenseNews.com reports that the Air Force might choose to retire all of its 66 B-1B long-range bombers, or put 350 (of its 1,018) F-16 fighter jets into mothballs. Either move, says the Air Force, would save roughly $3.5 billion over five years -- enough to keep the A-10s flying.
What it means to investors
If the A-10's backers in Congress are successful in saving the A-10, that would be good news for Northrop Grumman (NYSE:NOC), which has served as prime contractor for A-10 upgrading and maintenance work since 1987. (Israel's Elbit Systems (NASDAQ:ESLT) actually owns the remains of Fairchild Republic, which built the A-10. But Northrop bought Fairchild's A-10 business.)
On the flip side, if saving the A-10 means eliminating the B-1B Lancer, this would hurt Boeing's (NYSE:BA) B-1B maintenance revenues -- although it could boost the company's B-52 business, as missions that would otherwise be assigned to B-1Bs would logically shift to B-52s and B-2 bombers (the latter built by Northrop -- so a double win for them).
And of course, if the axe falls on the F-16, it would be a similar good news/bad news situation for Lockheed Martin. On one hand, the company would book fewer revenues from keeping F-16s flying. On the other hand, deployment of Lockheed's F-35 fighters might be accelerated to replace the missing F-16s.
On balance, a decision to save the A-10 would appear to favor Northrop Grumman, while being only bad -- not horrible -- for Boeing and Lockheed.