It's official: The U.S. Air Force is keeping its fleet of A-10 Warthog fighter-bombers -- at least until 2022.
Image source: Northrop Grumman.
In a statement on Feb. 2 describing the Pentagon's contribution to President Obama's 2017 budget request, Secretary of Defense Ashton Carter confirmed Pentagon plans to "maintain more of our 4th-generation fighter and attack jets than we previously planned -- including the A-10, which has been devastating ISIL from the air. The budget defers the A-10's final retirement until 2022."
Granted, between now and then, the Air Force still plans to retire and replace A-10s with newer F-35 stealth fighter jets "on a squadron-by-squadron basis." Still, it seems the worst that A-10 backers have to fear is a gradual retirement of the plane, as opposed to withdrawing the aircraft from the fleet en masse.
2022... or later?
It's even possible the 2022 deadline won't see the end of the A-10. Rep. Martha McSally from Arizona, a retired Air Force A-10 pilot, praised the Air Force's decision: "With A-10s deployed in the Middle East to fight ISIS, in Europe to deter Russian aggression, and along the Korean peninsula, administration officials can no longer deny how invaluable these planes are to our arsenal and military capabilities."
McSally later doubled down on her endorsement of the A-10, insisting: "The U.S. Air Force needs a next-generation A-10 before attempting to mothball any further A-10s" (emphasis added). That suggests the A-10's retirement could be postponed indefinitely.
So what does all this mean for investors?
Wave goodbye to $4 billion worth of F-35s? Image source: Lockheed Martin.
Military math
The numbers have shifted over the years, but at last report, the Air Force was saying retiring the A-10 could save it as much as $4 billion in operations and maintenance costs over five years. That's enough money to buy perhaps three dozen or more shiny new Lockheed Martin (LMT +1.05%) F-35A fighter jets.
If not spent on F-35s, these billions of dollars should flow instead to Northrop Grumman (NOC +0.14%), which is the prime contractor for A-10 maintenance work, and Boeing (BA +2.47%), which has a multimillion-dollar contract to upgrade wings on the A-10 fleet. Northrop and Boeing, accordingly, should be pretty pleased with the Pentagon's decision.
Conversely, earmarking these funds for the A-10 means less money available for F-35 purchases. That would suggest that the pace of F-35 buying could slow, which is certainly not good news for Lockheed Martin -- and not just Lockheed Martin. Already, United Technologies (UTX +2.34%) has delivered 100 more F-35 jet engines than Lockheed Martin has delivered actual F-35s. A reduction in the pace of F-35 procurement could throw the engine-to-plane ratio even further out of whack, and threaten to slow the rate at which United Technologies is asked to produce (and be paid for) engines for the F-35.
Another possible knock-on effect: Perhaps the most important line about the F-35 is the one SecDef Carter uttered last week, when he said the Pentagon plans to "maintain more of our 4th generation fighter and attack jets." That statement goes beyond just the A-10. It suggests a Pentagon commitment to keeping (and perhaps even buying?) more of Boeing's F-15s and F/A-18s, instead of buying new F-35s from Lockheed Martin.
True, "4th generation" could also refer to Lockheed Martin's own F-16. So a move to spend more on fourth-generation aircraft, and less on fifth-generation birds, wouldn't be an absolute disaster for Lockheed. But with a hand in upgrading the A-10, and no fewer than two sets of fourth-generation fighter jets ready to fill the gap if fewer F-35s are produced, the clearest beneficiary of any military move to keep fourth-generation fighters flying is Boeing.
Boeing's F/A-18 fighter jet. On deck and ready to take the place of any F-35s the Pentagon doesn't buy. Image source: U.S. NAVY.
