Air Force Reverses Course on Retiring the A-10 Warthog

By Markets Fool.com

The U.S. Air Force doesn't hate the A-10 Warthog -- at least not officially. In fact, the Air Force doesn't have an official position on the Warthog at all. It has more like a dozen of them.

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The A-10 Thunderbolt II "Warthog" is one scary fighter jet -- and may just have scared the Air Force into keeping it. Image source: Getty Images.

On the one hand, the Air Force commissioned a promotional documentary a few years back explaining how the A-10 Warthog is its single best fighter jet "built for ground combat," and how "its presence alone is enough to keep the enemy at bay."

On the other, the Air Force also says anyone who clues in Congress to the Warthog's value risks "committing treason."

Indeed, on a third hand, the Air Force has repeatedly called for the Warthog's retirement, arguing this is the best way to free up funds for the Air Force to buy more F-35 stealth fighter jets from Lockheed Martin (NYSE: LMT).

And on, and on, and on.

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Sanity check

Last week, the Air Force announced its latest position on the A-10 Warthog, and I can just about guarantee that this one will surprise you: After years of maneuvering to get the A-10 retired from service, the Air Force now wants to keep the A-10 Warthog flying. What's more, they may even be willing to pay for it.

As you may recall, the Air Force currently plans to begin retiring A-10s from service in 2018 and to completely eliminate the aircraft from its inventory by 2021. But Secretary of the Air Force Deborah Lee Jamesrecently told Aviation Week that she'd consider "different approaches" to keep the A-10 in service "longer" than that -- although she didn't say how much longer.

That vagueness has some folks questioning the Air Force's commitment to its close-air support mission. But James insists that "we stand by 150% the close-air support mission." And there's at least some evidence of actions being taken to back up those words. Last month, AW reported that maintenance depots servicing the A-10 are "ramping up capacity" to maintain the A-10. Air Force Materiel Command chief Gen. Ellen Pawlikowski confirms that her command has "turned on the depot line, we're building it back up in capacity and supply chain," and is making plans to continue maintaining the A-10 "indefinitely."

What it means to investors

All of this costs money -- and for defense contractors such as Lockheed Martin, Boeing (NYSE: BA), and Northrop Grumman (NYSE: NOC), perhaps enough money to be worth fighting over. For example, a recent piece in Popular Mechanics referenced Boeing's $2 billion contract to install new, upgraded wings on dozens of the 283 A-10 Warthogs still in service. At the same time, both Lockheed and Northrop Grumman share in the $700 million to $840 million per year that the Air Force says it spends on maintaining and operating its existing A-10s.

The longer those A-10s keep flying, the longer those revenues will keep flowing to Lockheed, Boeing, and Northrop. By the same token, though, the key reason behind the Air Force's historical efforts to retire the A-10 remains its desire to spend this money on buying new F-35 stealth fighter jets. If the Air Force is now rethinking the idea of retiring the A-10 Warthog, that would seem to imply a reduction in the rate at which it buys F-35s -- which would necessarily pinch Lockheed's profits.

So how should investors respond to this latest shift in Air Force priorities? Given the frequency with which the Air Force changes its mind about the A-10, I'm not convinced there is a need to respond to this latest development, which could be reversed yet again in the very next press release. For now, the Air Force's latest rethink seems to give hope to fans of the A-10 Warthog, and investors in the companies that are maintaining, and upgrading the aircraft.

But we'll want to see more hard numbers, and actual contract awards, before acting on those hopes.

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