The United States has a stealth fighter jet.
In fact, we have two of them: the F-35 Lightning II and the F-22 Raptor, both built by the nation's largest defense contractor, Lockheed Martin (NYSE:LMT). Designed to be invisible to radar, the better to penetrate enemy air defense networks, the F-35 and F-22 are currently the only "fifth-generation" stealth fighters flying. But, as China just announced, that won't be true for long.
At last week's Airshow China in Zhuhai, Chinese officials unveiled the nation's newest fighter jet: the Shenyang J-31 Falcon Eagle. Built by Shenyang Aircraft, a subsidiary of state-owned Aviation Industry Corporation of China, the J-31 is the latest example of the prowess of the nation's military-industrial complex, designed to compete directly with American F-35s and F-22s for air superiority in the 21st century.
What's more, the J-31 won't compete just on China's behalf. Unlike China's other stealth fighter under development, the Chengdu J-20, Beijing will make the new J-31 available for sale to international customers. Most likely, these will be countries that can't afford, or aren't allowed to buy, an American F-35. (DefenseNews.com suggested likely buyers of the J-31, dubbed the FC-31 for international sale, will include both Pakistan and Iran.)
And that's where this story really begins.
The enemy of my enemy...
In developing the FC-31 -- and particularly in developing it for export -- it seems China is setting up AVIC as a fighter jet-selling rival to Lockheed Martin. At first, this might sound like bad news for Lockheed, which will now have to compete against much cheaper Chinese fighter jets when marketing its F-35 for sale around the world.
On the other hand, competing against cut-rate-priced Chinese jets has not prevented Lockheed's F-16 from becoming the world's No. 1 fighter jet. When you think about it, the FC-31's arrival on the world stage could actually be good news for Lockheed.
Consider: The countries to which China will likely market the FC-31 -- nations such as Iran, North Korea, Bangladesh, and Sudan, which already operate Chinese warbirds -- probably aren't great markets for selling the F-35 in the first place. They're either politically untenable customers, to which the U.S. government would not approve sales (Iran, North Korea); or they're simply not rich enough to afford the F-35's $100 million-plus price tag (Bangladesh); or both (Sudan).
This being the case, Lockheed probably won't lose many potential F-35 sales, even if the FC-31 sells well.
... is my friend
Then there's the catalyst factor. Love Lockheed Martin's F-35 or hate it, the fighter jet is already proving to be a very popular aircraft around the globe. The Israelis have scrambled for a place in the receiving line, ordering dozens of the planes. South Korea just rejected a Boeing (NYSE:BA) bid to build it five dozen brand new F-15SE fighter jets, insisting it just had to have Lockheed's stealthy F-35 instead. Experts have suggested Lockheed could sell as many as 2,000 to foreign buyers, in addition to the 3,100 planes earmarked for the United States and its closest allies already -- resulting in combined revenue of upward of $1.3 trillion for Lockheed Martin.
China's FC-31 could be the catalyst that makes all these international sales possible.
Think about it: Once China begins selling FC-31 stealth fighters internationally, it could spark an even wider arms race around the globe. After all, countries adjacent to countries that buy the FC-31 aren't likely to be happy knowing their neighbors own "invisible" fighter jets. They might feel compelled to buy F-35 stealth fighters of their own to counter them.
It's not hard to imagine how a sale of FC-31s to Egypt or Syria, for example, might inspire Israel to order even more F-35s for its own air force. Or how a sale of FC-31s to Pakistan or Bangladesh could turn India into an F-35 export market. And, of course, deployment of the nonexport version J-31 within China itself could boost sales of F-35s to South Korea, Japan, and Australia (all already customers), and to other Southeast Asian nations already worried about China's rising military strength.
Really, when you get right down to it, China's development of the FC-31 could be the best thing that ever happened to Lockheed Martin.