No A-10 Warthog for Afghanistan -- but Here's the Next Best Thing

By Markets Fool.com

For four long years, Afghanistan has been waiting for an air force. Now, they're finally going to get one -- courtesy of the U.S. Air Force.

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There's "close-air support" -- and then there's "Warthog-close" -- where the planes fly below the troops. Photo source:Flickr.

Given their druthers, the Afghans would probably like an air force geared toward close-air support of their troops combating Taliban fighters on the ground. For that role, the A-10 Warthog is by all accounts the best plane for the job. But beggars can't be choosers. Instead of the A-10, the U.S. Air Force will outfit Afghanistan with 20 brand-new A-29 Super Tucano fighter planes from Embraer .

As reported on DoDBuzz.com last month, Embraer and partner Sierra Nevada will begin delivering Super Tucanos to Afghanistan sometime in December. Deliveries are expected to be slow at first, then ramp up, with all 20 Super Tucanos due to be delivered by 2018.


An A-29 Super Tucano in action. Photo source: Embraer and Sierra Nevada Corporation.

Wait -- "Tucano"? Like the Froot Loops bird?
A lot like Toucan Sam, yes -- except that Embraer's bird has serious claws. An evolution of Embraer's original Tucano design, the Super Tucano is a prop-driven ground-attack fighter powered by a single 1,600 SHP Pratt & Whitney PT6A-68/3 turboprop engine, and featuring:

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  • An armored cockpit to protect against small-arms and anti-aircraft fire.
  • Two internal, wing-mounted .50" machine guns for strafing, with magazines of 200 rounds each.
  • 10 additional hardpoints along the wings for attaching up to 1,800 pounds of bombs and rockets -- or additional machine guns or 20mm cannon pods.
  • A top speed of 370 mph, a 340-mile combat radius (fully loaded), and a ceiling altitude of 35,000 feet. (Oh, and Embraer says the plane can also conduct limited air-to-air operations, carrying AIM-9 Sidewinder missiles.)

Perhaps best of all, the Super Tucano costs an estimated $500 an hour to operate -- a big selling point for a cash-strapped customer such as Afghanistan, In fact, that's about one-sixth the operating cost of Textron's ultra-cheap Scorpion light fighter jet.

What it means to investors
The U.S. Air Force awarded Embraer the contract to build 20 Super Tucanos for $427 million -- $355 million for the planes themselves, plus $72 million in additional costsincurred as the Air Force dealt with multiple challenges to the contract award. Back out those extra costs, and it looks like the Air Force is paying about $17.8 million per plane -- just under the likely cost to build a new A-10 Warthog today.

What's more, Afghanistan mightbuy more planes (or the Pentagon might do so for them). When first announced, in fact, the Super Tucano contract was said to be worth potentially $950 million to Embraer. That suggests long-range plans to buy as many as 52 Super Tucanos.

Is this how things will play out? With U.S. troops still in Afghanistan, the Air Force cooling its enthusiasm for the A-10 Warthog, and Lockheed's F-35 in hot water over its gun's inability to shoot,it's entirely possible we might buy more A-29 Super Tucanos for Afghanistan. In which case, the value of Embraer's initial sales contract could double or more.

At a hypothetical value of $1 billion, this single contract could be worth nearly 18% of Embraer's overall annual revenue -- and nearly as much as the company's entire defense business sells in a year. Fifty-two new planes would also grow the global fleet of Super Tucanos in service by 30%, producing more maintenance and services revenue, potentially even bigger economies of scale in production, and bigger profits for Embraer.

Speaking of which, profit-wise, Embraer already earns a 10% operating profit margin on its defense business, according to S&P Capital IQ. That makes defense Embraer's single most profitable business division.

As these birds start alighting in Afghanistan, Embraer's profits could get even bigger.


Will Super Tucano supersize profits for Embraer? It might. Photo source: Embraer and Sierra Nevada Corp.

The article No A-10 Warthog for Afghanistan -- but Here's the Next Best Thing originally appeared on Fool.com.

Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 288 out of more than 75,000 rated members.The Motley Fool recommends Embraer-Empresa Brasileira. The Motley Fool owns shares of Textron. 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.