Posted by Seeking Alpha
Jul. 27, 2016 8:06 AM ET| About: Textron Inc (TXT)
- The introduction of the Scorpion aircraft may jump start sales as the aircraft is both affordable and tactically sound.
- Operating costs are much lower than most other modern military planes.
- United States Air Force’s airworthiness certification may help with foreign military sales.
The recent attacks in Europe are an unfortunate reminder that terrorism will continue to be a threat for years to come. To combat both regional and internal threats, countries around the world will need to continue to modernize and update their weapon systems. Textron’s (NYSE:TXT) Scorpion aircraft is a potential game changer in the defense sector due to its capability and affordability. Many countries’ militaries are fiscally constrained and do not have the financial means to purchase high-end weapon systems like the F-35. Recently, the United States Air Force announced that they will be certifying the airworthiness of the Scorpion, a move which will certainly make the aircraft even more desirable for potential international customers.
While NATO countries can afford to procure advanced, multi-role aircraft, developing countries mainly rely on turbo propeller aircraft for reconnaissance and surveillance missions, close air support, and airspace denial. In fact many militaries throughout Asia, Africa, and Latin America use antiquated aircraft due to budgetary constraints. For example, the Turkish Air Force is one of several countries still flying the McDonnel Douglas F-4 Phantom. The F-4 was first flow in 1958 and these planes are nearing the end of their service life. Additionally, countries looking to upgrade from the Embraer EMB 314 Super Tuscano (turbo propeller) might also look to the nimble Scorpion to fill the role as a light attack aircraft. With a price tag of $20 million per aircraft, the Scorpion has the potential to secure a sizable market share in developing nations.
Operating costs for military aircraft might be dwarfed by the initial acquisition cost, but it is operating costs that ultimately eat into an air force’s budget. For example, the F-16 costs approximately $25,000 per hour to operate. The higher operating costs for the F-16 are expected given the aircraft is a high performance, multi-role plane capable of defeating most air-to-air threats. In comparison, Textron’s scorpion costs only $3,000 per hour to fly and is built to accomplish the same missions as the F-16, with the exception of air combat superiority. The Scorpion is a multi-role subsonic jet and cannot match the F-16’s speed. However, given recent and ongoing conflicts, air-to-air combat is becoming increasing rare. Developing nations need aircraft for surveillance, border patrol, and to provide ground support. These countries will be more likely to be combating insurgents than state actors with military aircraft.
The Scorpion has impressive operational capability, especially given the plane’s operating costs. Capable of flying speeds up to 450 knots and carrying up to 6,200 Ibs of ordinance, the plane can engage air and ground threats alike. With a max service ceiling of 45,000 feet, the Scorpion can fly high enough to avoid heavy ground fire. The combination of agility and impressive ordinance payload capability makes this subsonic military aircraft ideal for developing nations that cannot afford the likes of an F-16. Textron’s plane has so far proven to be quite reliable with an availability rate of 98%.
On July 20th, the United States Air Force announced it had signed a Cooperative Research and Development Agreement with Textron, under which the military branch will conduct an airworthiness assessment of the Scorpion. Now, this is very significant as the Air Force’s certification may entice foreign buyers to acquire the Scorpion. The Air Force normally only assesses the airworthiness of aircraft it intends add to its arsenal.
Textron’s stock price has lagged larger competitors Lockeed Martin (NYSE:LMT) and Boeing (NYSE:BA) in the aerospace/defense space. With a P/E of just 15, the stock is certainly not expensive. I am going to say that Textron is a good value play, especially if the instability in the Middle East continues. The company is not just a one trick pony as it is the parent corporation for Cessna, Bell Helicopters, Textron Aviation, and Beechcraft.
In conclusion, Textron’s Scorpion could potentially grab a large market share in developing countries given its affordability, performance, and the United States Air Force’s air worthiness certification. As the threat of extremism grows throughout the world, countries will need to continue to update their capabilities. With operating costs at $3,000 per hour, the Scorpion is a cost-effective means of accomplished various missions.
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Scorpion jet: Details