Pentagon Hates Textron's Scorpion -- But Loves This Aircraft

It's been more than three years since Textron (NYSE: TXT) announced -- to great fanfare -- the creation of a budget-priced, jet-powered fighter jet. Built in record time from off-the-shelf parts, the new Textron AirLand Scorpion boasts a top speed two-thirds the speed of sound (450 knots), a payload of up to 3,000 lbs. of bombs and missiles carried internally, and a budget price of less than $25 million per plane -- but not a single sale to any customer in more than three years.

Lucky for Textron, then, that the Scorpion jet isn't the only weapon it's got up its sleeves.

Textron's V-22 Osprey -- a Marine Corps fan favorite. Image source: Getty Images.

Hatching a plan for Osprey

While the Scorpion jet is getting no love at the Pentagon, there's another Textron plane that the Marine Corps (at least) simply cannot get enough of: the tiltrotor V-22 Osprey, co-built by Textron and Boeing (NYSE: BA).

Last year, we told you how the Marine Corps has been singing Osprey's praises, and buying the warbird hand over fist. They've been buying so many Ospreys, in fact, that the Marines are having trouble finding pilots to fly them all. Well, they'd better train them fast, because as we just learned, the Marine Corps just hatched a plan to make the Osprey even more useful than it already is -- a development that's likely to make Textron's Osprey more popular than ever.

A warbird with claws

The Marines love the V-22 Osprey for its ability to rapidly transport troops from amphibious warships to a beachhead. One thing they would like, though, is if Osprey could do a bit of damage itself when it arrives.

As currently outfitted, an MV-22 Osprey can carry at most a 7.62 mm chain gun or.50-cal machine gun for self defense. But as reported earlier this month on, the Marines would like Textron to begin arming Ospreys with a rather robust array of weapons, including "forward firing rockets, missiles, fixed guns, a chin mounted gun, and also" potentially "a 30MM gun along with gravity drop rockets and guided bombs." This, says Scout, would permit the aircraft "to support amphibious operations with suppressive or offensive fire as Marines approach enemy territory."

Marine Corps spokeswoman Capt. Sarah Burnssays the Corps wants to begin integrating these weapons, along with forward-looking infrared radar (FLIR) targeting radars, by 2019. Further out, the Corps is looking to have Textron build it an upgraded version of the original Osprey, to be designated "MV-22C." This new version, expected to be introduced in 2030, would incorporate additional advances in sensors and digital communications, along with greater speed and payload capacity.

What it means to investors

The first and most important thing for investors to keep in mind when gauging the importance of these developments is that whatever incremental revenues they generate, you need to take that number and divide it by two. This is because Textron does not build the V-22 Osprey solo, but as part of a joint venture with Boeing. Thus, all revenues the "Bell-Boeing Joint Program Office" earns from Osprey upgrades get split down the middle between the two companies.

That said, there could be a lot of money to split. Currently, the Marines are about 290 units into a planned 360-unit purchase of Textron's Osprey. At an estimated unit cost of $71.9 million, that means there is at least another $5 billion in revenues remaining in this $25.9 billion production contract.

This number could run even higher if the Marines' desired upgrades are incorporated into the rest of the production run, and/or existing Ospreys get retrofitted to accommodate the new weapons the Marines are asking for. And farther down the road, there's also the MV-22C upgrade to consider. How many units of the new variant might be purchased remains unknown -- but at $72 million or more apiece, the money will add up quickly.

The moral of this story? It sure would be nice if Textron could get the Pentagon to buy a few of its Scorpion jets. Failing that, though, at least the ever popular Osprey should keep this company in business for a good long time.

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