The U.S. Air Force's trainer experimental program, T-X, is about to set off a huge domino effect in the aerospace and defense industry.
Three of the largest defense contractors in the world are all vying for the $8.4 billion multi-year contract that will need the winner to supply at least 350 aircraft to replace the aging fleet of T-38 Talon jet trainers. This figure may even go up to 1,000 jets over the project lifecycle of almost 50 years. The ramifications in terms of potential gains for these companies' investors will be enormous.
The T-38 Talon is in dire need of replacement. With an average age of 43.5 years, the T-38 has already been in production for 55 years. Although the two-seat, twin-engine supersonic jet trainer, originally manufactured by Northrop Grumman, continues to be in service to this day, it lacks the ability to be upgraded. As a result, certain skills and maneuvers can't be taught on these models.
The company that submits a cost-effective proposal will have an advantage, because the government is striving to reduce military spending without compromising on safety and strength. That is why, amid spending cuts and budget concerns, despite beginning the spade work in 2003, the new aircraft's rollout will overshoot the 2020 deadline to 2023.
With the requirements finally having been released in March this year and the contract expected to be awarded in 2017, aircraft companies have an eventful year ahead of them. Northrop and Boeing already have clean sheet designs for their T-X proposals. Here are the three companies that have the best chance of getting the contract. Let's take a look.
The market leader the last six decades has experience with the country's trainer jet program, having built the T-38 Talon which has been in service since the 1960s.
It is perhaps for this reason that the T-X aircraft's concept, of which the company gave a peek to journalists late last year, bears a striking resemblance to the T-38 Talon.
The concept jet was a low-winged trainer with cheek-mounted fan inlets, an area-ruled fuselage, a structural chine running backward from the nose and a conventional single tail. However, the company said that the final prototype, which is expected to take flight sometime in the first half of this year, would look slightly different.
The company is engaged in the internally funded operation with its 2007 acquisition of Scaled Composites. The latter is renowned for its innovative engineering that can be executed in a restricted timeframe.
Initially, the company intended to propose an updated version of the Hawk T2/128 for the T-X program along with partners BAE Systems (BAESY) and L-3 Communications Holdings (LLL) - Get Report , but in February 2015 it instead decided to shift to a new design.
While there is no date scheduled yet as to when the prototype will fly, with Northrop's 60-year history and solid reputation in the defense aircraft space, there are high chances of it bagging another win. Nabbing this coveted contract would provide assured, multi-year tailwinds for Northrop Grumman.
Until late last year, the only revelation pertaining to the clean sheet design of the trainer prototype being built by Boeing and Sweden's Saab AB (SAABF) was an artist's impression of the long nose and forward cockpit.
While VIPs present at the Air Warfare Symposium in September received more details, the press was kept away from the event, highlighting the clandestine nature of the project. There is also no indication of the timeframe during which the prototype will fly.
However, Boeing Phantom Works, the prototyping arm of the company, seems to be maintaining a strong focus on technology that will power the trainer jets and other defense aircraft.
Securing the deal will be of utmost importance to Boeing, which has lost ground over time in the aerospace defense industry to competition, and its international partner Saab, which has already taken a financial hit last year pertaining to the investment in the T-X project.
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In a contrast to the other two companies mentioned, Lockheed decided to forgo plans of offering a new design for T-X and is instead offering the upgraded T-50A in collaboration with South Korea's Korea Aerospace Industries. The final unveiling of the modernized jet, a different model of which is already serving the Korean Air Force, is expected to take place in 2017.
The company arrived at this decision keeping in mind the timelines for operability of the planes and the cost structure. Apart from preparing pilots to operate fifth-generation aircraft such as F-22 and the F-35, the U.S. Air Force also capped the asking price of the new trainer at less than a new F-16.
While Lockheed already has jewels like the F-22 and the F-35 in its crown, the trainer jet being pitched is the polar opposite of its existing offerings. The company may also struggle with the fact that its pricing is already expected to be on the higher side.
Securing the billions in contracts over the next five years will be more than striking gold for any of these companies. But it remains to be seen who can offer the U.S. Air Force the biggest bang for its buck.
Aerospace defense is Northrop's bread and butter, so winning this contract is not only a strong possibility but also crucial for the company. While Boeing may not be destroyed if the contract doesn't come its way, losing it means that it may just not be spotted on the aerospace defense radar with its F-18 and F-15 due to complete their order runs in some years. Finally, it remains to be seen if Lockheed can replicate its success with the F-22 and the F-35 at a lower price tag.
The verdict: Northrop Grumman seems to have the inside track. If you agree with this assessment, the time to pick up shares is now, before the announcement boosts the stock.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.