Congress is working again, and the A-10 is saved.
That's the upshot of a story just out of the Military Times, which reports that House and Senate negotiators in Washington have agreed to send the president a $490 billion military budget for the current fiscal year (plus $64 billion tacked on for supplemental spending projects). The 2015 Defense Authorization Bill (NDAA) also appears to have ended debate over the future of the U.S. Air Force's fleet of 326 A-10 Thunderbolt "Warthog" close-air support fighters.
According to MT, the NDAA will forbid the Air Force from retiring its A-10s for at least one year. The Air Force may have some wiggle room to trim flight hours and maintenance on the aircraft, "but only after a readiness study is completed." Crucially, the NDAA gives the Air Force $337 million to keep the A-10 Thunderbolt Warthog operational and flying through the end of fiscal 2015.
Taking the fight to ISIS
Make that $337 million or more. The 2015 NDAA authorizes $5 billion in funding for U.S. military efforts against ISIS in Iraq and Syria. Last month, we learned that the Indiana Air National Guard's 122nd Fighter Wing sent a flight of a dozen A-10s to join the newly reactivated 332nd Air Expeditionary Group in Iraq. So it seems likely that at least some of that $5 billion will be earmarked for maintaining, upgrading, and arming those A-10s -- and paying for their flight-hours as well.
Now, 12 planes may not sound like much. But if you recall, September's "shock and awe" air campaign against ISIS targets in Syria involved airstrikes by only 48 combat aircraft -- and only 32 of them U.S. aircraft. As of today, the A-10 Thunderbolt Warthog could account for as many as 1 in 4 of U.S. combat aircraft taking the fight to ISIS.
This is big news for fans of the A-10, an armed-to-the-teeth ground attack aircraft that was originally designed by Fairchild Republic as a "tank buster" to be used against Soviet armor in the 1970s. It's probably bad news for ISIS, though. As one A-10 pilot put it, in a still-unreleased U.S. Air Force documentary on the A-10: "The A-10, just its presence alone is enough to keep the enemy at bay."
But what does it mean for investors?
Who wins if the A-10 Thunderbolt Warthog lives?
"Fairchild" is no longer in business per se. But numerous defense contractors still have an interest in the aircraft -- and one defense contractor in particular has an even bigger interest in seeing the A-10 Thunderbolt Warthog die.
The winners from the A-10's return into Iraq include Northrop Grumman (NYSE:NOC), which since 1987 has served as primary contractor for A-10 upgrades and maintenance. Boeing (NYSE:BA) and parts supplier CPI Aerostructures (NYSEMKT:CVU) also stand to benefit. Boeing has a contract to upgrade the wings on older A-10s. If the plane were to be immediately retired, as the Air Force desires, that upgrade contract would likely go away.
...and who loses?
Meanwhile, Lockheed Martin (NYSE:LMT) is the big loser in Congress' decision to retain the A-10. While the Air Force has no objection to taking Congress' $337 million, it would dearly like to spend that money buying another couple dozen F-35 Joint Strike Fighters from Lockheed. According to the Air Force, while the F-35 isn't a specialized ground support aircraft, it can do an adequate job of providing close-air support, or CAS, to ground troops.
If it ever does get around to testing that gun, the F-35 will have to immediately head back to base to reload. After all, the GAU-22/A gun on the F-35, used to strafe ground targets, can only carry 182 20mm cannon rounds. Firing at 3,300 rounds per minute, that means that an F-35 will empty its magazine in about 3.3 seconds, and be running on empty.
"The A-10 was built for ground combat"
That's another quote from the Air Force's own "Grunts of the Air" documentary, in which A-10 pilots aver that their "No. 1 priority is always saving the guys on the ground." Unlike the F-35, whose jack-of-all-trades (but master of none) mission statement ensures it can never really equal the A-10 for close-air support prowess, ground support is the A-10's raison d'etre.
In contrast to the F-35's limited usefulness in ground support, and limited ammo load, the 1,174 rounds loaded into an A-10's larger GAU-8/A Gatling gun, firing at 3,900 rpm, give nearly 18 seconds of firing time. That's enough to strafe more than a dozen targets before the plane must return to base. When you consider furthermore that the A-10 is a much cheaper plane to fly than the F-35, costing about half the F-35's estimated $32,000 per flight hour, the economic argument in favor of keeping the A-10 only gets stronger.
The moral of this story? Congress made the right decision in voting to fund the A-10 Warthog Thunderbolt for one more year. Whether the plane sticks around longer than that, and continues to generate revenues for the defense contractors who support it, will depend on whether the A-10 lives up to its reputation in Iraq.
Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.