Many companies make fighter jets. A few of them are publicly traded. Even fewer may be worth investing in.
In the 21st century, there are fighter jets, and then there are fighter jets. Which kind you get depends on how much you want to pay.
Got hundreds of millions of dollars to toss around? Then like the U.S. government, you can hire Lockheed Martin (NYSE:LMT) to design and build you an F-22 Raptor stealth fighter — widely considered the most capable air superiority combat jet in the world. (Of course, if you cut your production run short before efficiencies of scale kick in, the planes end up costing $412 million apiece.)
Those same $412 million could buy you a handful of Boeing‘s (NYSE:BA) perfectly serviceable fourth-generation F/A-18 or F-15 fighter jets, of course, retailing for about $100 million a pop. Or alternatively, if you’re buying on a budget, you might enjoy a nice Soviet-era Sukhoi Su-34 “Fullback.” ***** (List price: $18 million.)
Depending on what a nation needs, various buyers pick various warplanes and various price points. But which are the most popular combinations today? Let’s find out, beginning with a really old picture of No. 10.
10. Chengdu J-7 Fishbed (no longer in production)
OLD PHOTO OF A J-7 IN U.S. POSSESSION. IMAGE SOURCE: U.S. AIR FORCE.
Holding steady at No. 10 on this year’s edition of Flightglobal Insight “World Air Forces” report (link leads to a free download of the report) is the Chinese J-7 fighter jet. It’s actually China’s version of the old Soviet MiG-21 and is no longer produced. Still, 418 remain in service, giving the fighter a 3% global market share.
9. Chengdu F-7 Airguard, list price: $2-3 million
PAKISTANI CHENGDU F-7. IMAGE SOURCE: U.S. AIR FORCE.
The export version of China’s J-7 is dubbed F-7, and it’s likewise a twin to Russia’s MiG-21. The global population of F-7s declined by just one plane over the past 12 months and now stands at 459 aircraft, giving the F-7 a 3% market share as well.
8. Northrop Grumman F-5 Tiger, list price: $20 to $25 million (estimated) *****
NORWEGIAN AIR FORCE F-5 TIGER. IMAGE SOURCE: WIKIMEDIA COMMONS.
Northrop Grumman‘s (NYSE:NOC) F-5 Tiger is no longer in production. Curiously, though, some decommissioned F-5s appear to have been resurrected from the grave over the past year, as Flightglobal says the number of F-5s in service grew from 468 a year ago to 482 today. That works out to a 3% market share as well.
7. Sukhoi Su-25 Frogfoot, list price: $11 million
KAZAKH SU-25 AT LANDING. IMAGE SOURCE: WIKIMEDIA COMMONS.
Russia’s answer to the American A-10 Thunderbolt II “Warthog,” the Su-25 is a dedicated “tank-buster” aircraft. It’s also more popular than the Warthog. According to Flightglobal figures, the U.S. Air Force only has 291 A-10s still in service — but there are 503 Frogfeet flying around the globe, so 3% market share again.
6. Mikoyan-Gurevich MiG-21 Fishbed, list price: $25,000*
EGYPTIAN AIR FORCE MIG-21. IMAGE SOURCE: U.S. AIR FORCE.
Once one of the world’s most popular fighter aircraft, the number of working MiG-21s continues to dwindle. Its numbers have fallen from 793 in 2013, to 698 in 2014, 668 in 2015, and just 551 today. Because it’s no longer produced, it’s hard to say how much a new one might cost…but you can apparently buy a used MiG-21 on eBay for about 25 grand.
The MiG-21 still commands 4% market share. And if you count its “twins” — the Chinese J-7s and F-7s — there are 1,428 MiG-21 lookalikes in service, with a market share more than double that of the MiG-21 proper.
5. Mikoyan-Gurevich MiG-29 Fulcrum, list price: $40 million *****
GERMAN MIG-29 — PRESUMABLY A HOLDOVER FROM THE OLD DDR DAYS. IMAGE SOURCE: U.S. AIR FORCE.
Last year we mentioned that a new variant of the Mig-29, dubbed the MiG-35D, was slated to enter service in 2016, giving a new lease on life — and increased marketshare — to the Moscow warbird. That has now happened, and the world’s most advanced MiG has enjoyed a market share boost to 6% (819 planes) as a result.
4. Boeing F-15 Eagle, list price: $100 million
BRITISH ROYAL AIR FORCE F-15 STRIKE EAGLE. IMAGE SOURCE: U.S. AIR FORCE. *****
Losing more and more international fighter jet competitions through a combination of high cost and low stealth, Boeing’s F-15 is down but not out. Last year, Boeing built 12 “F-15 Models” for its customers, helping to grow the plane’s base to 858 aircraft and giving it a 6% market share.
3. Sukhoi Su-27 Flanker, list price: $18 million
SU-27 IN FLIGHT. IMAGE SOURCE: WIKIMEDIA COMMONS. *****
Thanks to resurgent Russian military spending at home, and a declining ruble abroad (which makes it more competitive in foreign markets), the Su-27 Flanker remains Russia’s most popular fighter jet — and the third most popular fighter in the world. When you include its Su-30 variant, the Flanker fleet boasts 6% global market share, with 943 aircraft in service.
2. Boeing F-18 Hornet, list price: $92 million
F-18S OVER AFGHANISTAN. IMAGE SOURCE: U.S. AIR FORCE.
1. Lockheed Martin F-16 Falcon, list price: $34 million *****
AIR NATIONAL GUARD F-16S STAND GUARD OVER KOREA. IMAGE SOURCE: U.S. AIR FORCE.
And last (first?), but not least, for the third year running, Lockheed Martin’s modestly priced F-16 Falcon tops the rankings in this year’s edition of Flightglobal’s “World Air Forces 2016” report (See below). With 2,264 planes in active service, the F-16 is still the most popular fighter jet on the planet, making up 16% of the world’s air forces.
Why investors care about fighter jets
Why is this important to investors in the defense industry? It works like this: The more planes a company sells, the broader the base over which it can spread R&D costs, and the less it needs to charge per plane.
The lower the cost, the cheaper the plane.
And the cheaper the plane, the easier it is to sell more planes, growing market share further. Thus the effect snowballs.
Lockheed Martin has sold more than 4,500 F-16s around the world. That’s not surprising, because it’s one of the most cost-effective warplanes in our inventory, costing just $21,450 per flight hour*****. By comparison, Lockheed’s new F-35 Lightning II stealth jet costs $67,549per flight hour, according to U.S. Air Force official documents (See below).
Half of Lockheed’s F-16s are still flying and generating services, maintenance, and upgrades revenue for Lockheed — and, according to data from S&P Global Market Intelligence, they’re earning Lockheed’s shareholders nearly 11% profit margins on this revenue. Meanwhile, the aircraft Lockheed hopes will become the F-16’s successor, the F-35 stealth fighter jet, costs three times as much as an F-16 — both to buy and to fly (and certain versions of the F-35 could cost even more) (See below).
This raises the question: Can Lockheed Martin maintain its global market share dominance as it switches from selling low-cost F-16s to high-priced F-35s? Can it do so in the face of much cheaper fighter jet offerings from Russia and China?
So far, Lockheed appears to be making good progress. Recently, the U.S. Air Force inked a deal with Lockheed pricing new F-35 planes at less than $100 million each (engines not included). But if Lockheed Martin hopes to retain its place atop this list in the years to come, it needs to make continual progress in driving the F-35’s cost down and its sales volumes up.
Lockheed Martin’s profits depend on it. (See below)
LOW PRICES DRIVE SALES, BUT LOCKHEED MARTIN’S F-35 IS PRICED ANYTHING BUT LOW. CAN LOCKHEED MARTIN FLIP THE EQUATION ON THE F-35? IMAGE SOURCE: U.S. NAVY.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he’s currently ranked No. 290 out of more than 75,000 rated members.
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Original post @fool.com
- “Soviet-era Sukhoi Su-34 “Fullback.”” – There is no Soviet error Su-34 is it a typo of Su-24!
- “Prefer to buy American? Have you given Textron‘s (NYSE:TXT) new Scorpion a try? It’s a steal at $17 million per plane.” – If Scorpions were that cheap it would be selling like hot cakes by now!
- 8. Northrop Grumman F-5 Tiger, list price: $20 to $25 million (estimated)” – Where did they get the price?
- “5. Mikoyan-Gurevich MiG-29 Fulcrum, list price: $40 million” – Where did they get the price? What model of MiG-29 as there are brand new versions?
- “BRITISH ROYAL AIR FORCE F-15 STRIKE EAGLE. IMAGE SOURCE: U.S. AIR FORCE.” – There is no F-15 in the British Royal Air Force! What model and what version are the price quoting?
- “SU-27 IN FLIGHT. IMAGE SOURCE: WIKIMEDIA COMMONS.” – Su-27 cheaper than an F-5?
- “1. Lockheed Martin F-16 Falcon, list price: $34 million” – Must be a joke an F-16 costing that low is it one of the early versions? F-16 Block 50/52 are selling for $80 million!
- “Lockheed Martin has sold more than 4,500 F-16s around the world. That’s not surprising, because it’s one of the most cost-effective warplanes in our inventory, costing just $21,450 per flight hour“ – What????
Flightglobal’s “World Air Forces 2016” report: Here
Excerpt (Recommended it list the World Air Force Inventory)
Introducing the U.S. Air Force’s Top 10 Priciest Planes (to Fly): Here
How Lockheed Martin’s Grand Plan for the F-35 Fell Apart: Here
Once upon a time, there was an F-22 Raptor. It was a good plane — some even called it “the most capable air superiority combat jet in the world” — but it cost a lot.
At a sticker price of $412 million per plane , the U.S. Air Force couldn’t afford to buy a lot of F-22s. So, to ensure it had a good quantity of fighter jets, as well as a few of good quality, the Air Force proposed a “high-low” solution. On the high end, it would buy a handful of ultra-expensive F-22s to ensure air dominance. On the low end, to boost its numbers and ensure its ability to carry a lot of bombs into combat, it would buy a whole mess of F-35 Lightning II fighter jets — projected to cost just $35 million each. (Lockheed Martin(NYSE:LMT), which builds both planes, was happy to oblige on both ends).
That was the plan. Instead, the F-35 fighter jet is turning out to be the most expensive fighter jet ever built, and is expected to ultimately cost taxpayers as much as $1.5 trillion.
Did Lockheed Martin’s F-35 Stealth Fighter Just Get Cheaper?: Here
Lockheed Martin (NYSE:LMT) sold the (idea of the buying the) F-35 Lightning II to the U.S. Air Force as a stealth fighter jet costing just $35 million a copy. In fact, says the GAO, Lockheed Martin has been selling the planes for closer to $138 million.
That’s a discrepancy no inflation rate can explain away. And yet, there may finally be some good news for Lockheed Martin, for the Pentagon buying its planes — and for taxpayers footing the bill: The cost of Lockheed Martin’s F-35 may finally be coming down.
Earlier this week, in the Pentagon’s daily briefing on contracts awarded, Lockheed Martin was awarded a $1.27 billion contract to supply:
- six F-35B Lightning II stealth fighters to the Marine Corps
- four carrier-capable F-35Cs to the Navy
- three Air Force variant F-35As.
That’s 13 fighter jets total, for just a little under $1.3 billion — or just under $100 million per plane. And while that’s still more than the $35 million price originally promised, it’s actuallybelow the $106 million average price that Lockheed currently estimates as the plane’s cost.
…can be deceiving
At least, that’s how things look at first glance. There are, however, caveats to keep in mind. Most importantly, when Lockheed says it charges $98 million for the F-35A today, $104 million for the F-35B, and $116 million for the -C — $106 million on average across all three variants — the company notes that these prices are all “not including the engine.” (Hint: The F-35 is an advanced, fifth-generation warplane — but it still usually needs an engine to fly).