Make or Break Time
Describing the fighter export business as "no holds barred" is probably an understatement. With billions of dollars on the line (not to mention thousands of defense jobs and national pride), it's little wonder that competing firms--or in this age, competing teams--go all out in trying to sell their products to the world's air forces.
For the remaining consortium's that build jet fighters, the stakes have never been higher, as Bill Sweetman pointed out in his recent article for Defense Technology International. Defense firms that lose out in the next round of contracts face an uncertain future. Some will be driven out of the fighter business; others could be forced out of business altogether. A few survivors will face an uncertain and uphill road in attempting to reenter future fighter competitions, dwarfed by teams that sew up the next round of major aircraft contracts.
As Mr. Sweetman writes, there is tremendous competition in Europe, South America and East Asia, where various nations are looking for "late" fourth-generation fighters to improve their air-to-air and air-to-ground capabilities. In some cases, the potential customers are countries that can't afford (or don't qualify) for the Joint Strike Fighter program. But in other countries, the JSF is now being challenged by European competitors:
All eyes are on Norway, the Netherlands and Denmark, seeking a replacement for their F-16s. Norway needs 48 new aircraft, the Netherlands nominally 85, Denmark 24. Norway is moving toward a decision as early as this month. The Netherlands is expected to decide early in 2009, Denmark later in the year.
It’s remarkable that these nations are holding competitions at all. The F-16 program forged industrial and military bonds with the U.S. Air Force and Lockheed Martin, and all three countries were early partners in the F-35 Joint Strike Fighter (JSF).
JSF is driving the timing of these decisions. If this was an off-the-shelf purchase, the customers would not have to make a decision yet, since none is looking at initial operating capability (IOC) before 2016. But Lockheed Martin says it needs to ramp up production now to hit cost targets and wants to bind its partners into an early, large and contractually enforceable joint commitments to their 2012-16 buys. Before 2007, there seemed little doubt that Norway, Denmark and the Netherlands would lead the way into such a deal. Ironically, it was Eurofighter that started to change the picture in Norway, lobbying aggressively for an open competition, before pulling out of Norway and Denmark early this year.
But the Eurofighter's departure created an opening for the Saab, which is aggressively pushing its Gripen NG (Next Generation) as an alternative to the JSF. While the Gripen cannot match the JSF's stealthiness, it does offer lower operating costs and proven capabilities. Additionally, Sweden is offering attractive industrial participation (IP) for potential European customers, winning support among Norway's aviation industry.
Still, the Gripen faces an uphill battle in the three NATO countries, given the advanced technology of the JSF, and their long-standing commitment to the program. However, the Saab product can still "win by losing." Winding up in second place behind the JSF could be an effective marketing tool for the Gripen NG, making it more attractive for such customers as Brazil and Switzerland.
The emergence of the Gripen has also forced JSF into a "must win" situation. As Bill Sweetman observes, a Saab victory in Denmark, Norway or the Netherlands (or two of those countries) would create problems in other export markets--namely Australia--where various defense and industry factions favor the F-22 over the JSF. But with the USAF blocking Raptor exports, the Australians are still in line for the Joint Strike Fighter.
In other markets, Gripen is battling the Eurofighter Typhoon, the French Rafale and Boeing's F/A-18 Super Hornet for potential sales. Here's how Bill Sweetman handicaps the sweepstakes:
Among these are Switzerland and Brazil. The former has downselected to Gripen, Rafale and Typhoon; the latter to Gripen, Rafale and the F/A-18 Super Hornet. Switzerland has evaluated all three aircraft in-country and expects to make a decision in the third quarter of 2009.
Other than India, they are the only near-term contests where the European twins are engaged. Also, Brazil included the Super Hornet in its downselect, while the fighter was pulled out of Switzerland—even though it is a current Hornet operator, and Boeing’s only Super Hornet export so far was based on the ease and low cost of transition from the “classic” to the new aircraft.
After Switzerland and Brazil are decided, the Rafale is down to India. Typhoon is in play there, with longer-shot prospects in Korea and Japan. So far, however, the market seems to be taking its cues from the fighters’ sponsors in the U.K., Italy and France and their tepid support for both programs. The advantage in that respect belongs to Rafale, which has not been hampered by endless negotiations over every production batch of aircraft, and should benefit from a French government decision next year to buy 60 more aircraft and integrate active electronically scanned array (AESA) radar.
Both European twins suffer from high price tags, being more expensive than the projected price of JSF and more costly than the Super Hornet. And although fighters are Dassault’s heritage, it’s easy to forget that the company’s main business is selling corporate jets. The company has no incentive to give the Rafale away.
Boeing, as a competitor in Brazil, is working to eke out the Super Hornet line, which is supposed to close in 2014 as the Navy ends production in favor of the F-35C. But Boeing has taken advantage of a stable Navy production program to turn the Super Hornet into a model of efficient production.
Among the various competitor, Mr. Sweetman believes Saab is in the best shape, with likely deals in Switzerland, Romania and (possibly) other countries. That leaves Boeing, Dassault and Eurofighter battling over what's left. He thinks the market may be big enough for two firms, but not three. That means that one legacy company is building its last fighter.
On a related note, the current edition of Aviation Week offers more evidence of consolidation in the fighter business. The head of the holding company that owns the Russian Sukhoi design bureau is now in charge of rival MiG. His job is to improve the financial position of MiG, as the firm is consolidated into the United Aircraft Corporation, dominated by Sukhoi. That's quite a reversal from the days when MiG dominated the Russian fighter business.