"Listen, I love the A-10. I think it's a fantastic aircraft with a phenomenal combat record. But if someone tells me I can only afford to keep two out of three aircraft -- the A-10, the F-16 and the F-35 -- I have to pick the F-16 and F-35, because they can fly more kinds of missions."
-- General Herbert Carlisle, per BreakingDefense.com
When it comes to the fight over whether or not to retire the A-10, there are two distinct sides: the Air Force, which wants to retire the A-10, and Congress, which wants to keep the A-10. And while it may be tempting to chalk this fight up to a power struggle between Congress and the Air Force, there's more going on in this disagreement than meets the eye.
The question is: Why does the Air Force really want to retire the A-10, and could this impact Lockheed Martin's (NYSE:LMT) F-35 fighter jet orders?
The loss of air superiority
It's no secret that the Budget Control Act of 2011, also known as sequestration, has hurt the military. Indeed, the Army is facing the loss of 40,000 active-duty troops, the Navy and the Marines have had to cut funding for maintenance and training, and the Air Force has had to attempt to cut, or scale back, programs that it deems less than vital. This includes the A-10. In fact, at a State of the Air Force press briefing in January, General Mark Welsh said this about the Air Force's desire to retire the A-10:
For the Air Force, it's not an emotional issue: It's a sequestration-driven decision. We don't have enough money last year or this coming year to fund all of the things that we currently have in our force structure. ... It's not about not liking or not wanting the A-10. It's about some very tough decisions that we have to make to recapitalize an Air Force for the threat 10 years from now.
Specifically, retiring the A-10 will save the Air Force $3.5 billion over five years. Furthermore, as the Air Force Times points out, the service then wants to focus these funds on what it considers "more urgent combatant commander requirements." This includes desperately needed force modernization, as the average age of the Air Force's aircraft is 27 years old, and the technology is becoming outdated.
In fact, as Gen. Carlisle pointed out to Breaking Defense, Russia and China are actively pursuing weaponry that is more technologically advanced than what the Air Force currently has. If successful, they will effectively gain air superiority over the United States. This is a problem because both Russia and China are potential adversaries to the U.S. Consequently, the Air Force is trying to find ways to maintain its air superiority by moving to Lockheed Martin's F-35, but under the current budget environment, this requires the retirement of the A-10. In terms of trying to implement modernization plans and the F-35, Gen. Carlisle told Breaking Defense:
I'm trying to field the first units of the F-35 stealth aircraft at Hill Air Force Base, for instance, and the maintenance manpower I intended to use to support them was supposed to transition from the A-10 units. We also have Block 40 F-16s at Hill that I would like to use to convert the two A-10 wings to F-16 wings. I'm not allowed to do that either.
Simply put, the real reason the Air Force wants to retire the A-10 is not because it doesn't see the A-10 as important, but because in order to upgrade its fleet to more modern aircraft, it needs the funds currently being used for the A-10.
What this means for Lockheed Martin's F-35
According to The Heritage Foundation's "2015 Index of U.S. Military Strength," the Air Force wants to procure 1,763 F-35s, and it's the No. 1 priority in regard to modernization. Clearly, this is fantastic news for Lockheed Martin, since according to its latest quarterly report, the F-35 program is Lockheed Martin's largest program, and it accounted for approximately 20% of its total consolidated net sales for the quarter.
However, the F-35 is intended to replace older planes like the A-10 and the F-16, and it can't do that if Congress won't let the Air Force retire older planes. More to the point, the Air Force won't be able to field the F-35, or even place orders for more, without sufficient funds. So, does this mean Lockheed Martin will see a reduction in F-35 orders? Unlikely.
Right now, Congress is refusing the Air Force's efforts to retire the A-10, with senators like John McCain citing the plane's close-air support prowess and lack of a suitable replacement. But given the current budget constraints, the continued inability to find a solution to sequestration, the fact that the Pentagon is spending billions on the F-35, and the recent news that the F-35 performed "extremely well" in close-air support tests, it's likely that if it comes down to which plane to fund, the A-10 or the F-35, Congress -- like the Air Force -- will have to make the "tough decisions," and the vote will probably go to the F-35. Consequently, it's unlikely the A-10 will put a crimp on F-35 orders.
Katie Spence 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.