Boeing's F/A-18 got a lifeline in 2015... but now Dassault wants to cut it with a knife. Image source:Petty Officer 3rd Class Jason Johnston for the U.S. Navy.
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Man, Boeing just cannot catch a break.
For a while there, 2015 was starting to look like the year Boeing defense got its wings back. In February, opining that "stealth may be overrated,"U.S. Chief of Naval Operations Adm. Jon Greenert began laying the groundwork for the U.S. Navy breaking up with Lockheed Martin'sF-35C fighter jet, and buying a bunch of Boeing F/A-18s for its carriers instead.
Earlier this month, the Air Force floated a trial balloon of its own. In a controversial revelation, the Air Force suggested it was considering buying as many as six dozen cheaper F-15, F-16, and even F/A-18 fighters -- and cutting or postponing F-35 purchases in tandem.
Combined, these two moves appeared to breathe new life into Boeing's ailing defense business, which had been buffeted by a series of high-profile losses in competitions to sell fighter jets internationally. Just months ago, we were talking about the lack of new orders potentially forcing Boeing to shutter production of the F/A-18 as early as 2016. But now it's starting to look like Boeing might actually find enough business -- domestically -- to keep its production lines humming for another decade or more.
It had better. Because the international scene just turned bleaker.
2015: The year of Boeing -- and RafaleFor 15 long years, Boeing rival Dassault has been trying to convince someone, anyone, to buy the new Rafale fighter jet that it first introduced in 2001. Up until this year, Dassault had only convinced the French government itself to ante up. Then, all of a sudden, a miracle happened this year.
In rapid succession, first Egypt, then India signed up to follow France's lead and buy the French fighter jet. Last week, Rafale booked its third order of the year when Qatar, too, agreed to purchase 24 of the warbirds. According to reportage at Defense-Update.com, that makes 84 planes sold so far this year. (It would have been far more, but India apparently rolled back its purchase order from 126 fighters to just three dozen in June).
What it means to investorsWhether it's 174 planes Rafale gets to sell or "just" 84, the Qatari sale is obviously good news for Rafale.
Granted, Qatar has historically bought the vast majority of its warplanes from France, so the country's decision to continue patronizing Dassault isn't a huge surprise. But the size of the deal is impressive. 24 Rafales will more than double the country's existing air force of nine Mirage 2000 and 6 Alpha Jet fighter aircraft .(And probably replace them: Those Alphas have been flying since 1973, and the Mirages nearly as long).
Conversely, the confirmation that this contract has gone to Dassault is bad news for Boeing, which had bid its own F-15 for the contract, and has gone head-to-head with Dassault in other competitions as well.
Going forward, Boeing must continue offering its fourth generation F-15s and F/A-18s in competition against higher-end F-35s internationally -- all the while risking getting undercut on price by Saab, and now Dassault as well, on the low end. Well-heeled buyers will choose the fifth-generation F-35 over Boeing's planes unless Boeing prices them very low indeed, while competition from Saab and Rafale pulls the floor price ever lower.
Result: Whichever way it turns, chances are good that Boeing will find its profit margins squeezed.
ONCE AGAIN, FRANCE'S DASSAULT RAFALE IS TURNING HEADS. IMAGE SOURCE:FLICKRUSER PETER GRONEMANN.
The article Boeing Fighter Jet Rival Gets Stronger originally appeared on Fool.com.
Rich 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. 308 out of more than 75,000 rated members.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.
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