Lockheed Martin's F-16: Good Enough For Nations to Fight Over?

By Markets Fool.com


F-16 production is winding down in the U.S. -- but could take off abroad. Image source: Getty Images.

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Lockheed Martin's (NYSE: LMT) F-16 fighter is -- by a large margin -- the most popular fighter jet in the world. Across the country and around the world, Lockheed Martin has sold more than 4,500 F-16s over the past 40 years -- half of which are still flying today.

But now, at long last, the F-16 era may be approaching a close.

Lockheed is reportedly moving to shutter production of the F-16 at its facility in Fort Worth, Texas next year, and production numbers are already dwindling. Lockheed Martin's quarterly filingswith the SEC show that the company delivered just three F-16s last quarter, two the quarter before that, and two the quarter before that. At its current rate, the company is on course to build just 10 F-16s this year, fewer than the 11 F-16s built last year, and the 17 manufactured in 2014.

By all indications, the era of F-16-building is ending -- except for one thing...or maybe two.

To India, with love (for the F-16)

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You've probably heard by now that India is in the midst of a multiyear plan to upgrade its armed forces. As part of that effort, India placed an order for 126 high-end Dassault Rafale fighters back in 2011 -- but it later backed out of that deal. Now, India is negotiating with the United States instead, and looking to have Lockheed Martin shift F-16 production to India once it closes down in Texas.

Such a shift could conceivably breathe new life into Lockheed's F-16 program. Here in the U.S., Lockheed Martin is currently focused on getting the F-16's successor, the F-35 stealth fighter, ready for prime time. At the same time, though, a shift in production to India could help Lockheed win new sales among customers who cannot afford the fifth-generation F-35 -- but who could conceivably afford the fourth-generation F-16.

Winning the Indian contract could generate billions in new revenue from the old warbird. What's more, assuming lower costs of production in India than in the U.S., Lockheed could find that by producing the F-16 abroad, it will open new markets for the F-16 elsewhere in the region.

The enemy of my friend is also my friend

Not everywhere in the region, though. As it turns out, one monkey wrench could trip up Lockheed's effort to dominate both the high and the low ends of the international market for fighter jets, and it lies right across the border from India. Earlier this year, you see, Pakistan made a bid to buy nearly a full year's worth of Lockheed's (now diminished) F-16 production, asking Congress for permission to buy eight new F-16s for its air force. Pakistan had hoped to obtain discounted rates on these aircraft ($270 million up front, versus the full sticker price of $700 million for the planes).

Now, Congress declined to green-light this particular deal. But Pakistan likes the F-16 so much that, undeterred, it approached Jordan instead, with an offer to buy 16 used F-16 fighter jets from the Jordanian military. The deal's not yet set in stone, but if Jordan approves, these fighters would join 14 used F-16s that Pakistan bought from Jordan two years ago.

What it means for Lockheed

Now, you might think that Lockheed Martin's move to begin producing F-16s in India would offer a neat solution to this problem, lowering the price of F-16 production, and making it easier for Pakistan to buy new F-16s instead of old ones. Thus the money Pakistan was preparing to hand over to Jordan could flow into Lockheed Martin's coffers instead.

But here's the problem: India and Pakistan, while both U.S. allies, don't like each other very much. In fact, just last week, the Indian government accused Pakistani troops of violating a ceasefire along the countries' mutual "Line of Control" in Kashmir. Pakistan's army, says India, began "unprovoked and indiscriminate firing on Indian army posts" in what the India Times calls the second ceasefire violation in less than a week.

One imagines that these and similar conflicts within the region would tend to hinder Lockheed's ability to export F-16s from India, even to other markets in the region that would very much like to buy the F-16.

Then again, with Pakistan wanting to buy eight F-16s, but India in the market for as many as 126, at least you can say this much: If Lockheed Martin does end up shifting F-16 production abroad, to take advantage of continuing demand in the region...it's clearly picked the more lucrative side of the border to set up shop.

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Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 280 out of more than 75,000 rated members.

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