The recent sales of F-15 and F-16 fighter jets to Middle East nations are a boost for a U.S. defense industry facing significant decreases in Pentagon spending over the next decade.
Boeing [BA] is looking like the biggest beneficiary after the Obama administration announced last week that it had finalized a $29.4-billion deal to provide Saudi Arabia with 84 advanced F-15s and upgrades to the kingdom’s current fleet of 70 F-15s.
Lockheed Martin [LMT] is also poised to gain after agreements to supply F-16s to Oman and Iraq. The U.S. Air Force in December awarded the firm a contract to build 12 F-16s for Oman at a total value of $600 million. The order is for 10 F-16Cs and two F-16Ds.
In the same month, the Pentagon notified Congress of the possible sale of 18 F-16s to the Iraqi government. The total value of the package that includes armaments and training could reach $2.3 billion. That announcement came days after the Air Force gave Lockheed Martin an $835 million contract for a batch of 18 F-16s that had been previously arranged, raising to 36 the number of pending F-16 exports to Baghdad.
The foreign market has been critical for keeping the production lines running as the Pentagon is focused on the fifth generation F-35 Joint Strike Fighter, but by extending the lines, it also gives the Air Force options in the event the F-35 program is hit by severe cuts or even canceled, said Richard Aboulafia, an aviation consultant and analyst at Teal Group.
The Lockheed Martin-built F-35 has been under sharp criticism for its cost overruns and production delays and is facing heightened scrutiny as the Pentagon looks to absorb at least $450 billion in spending reductions over the next 10 years. Like the Navy and Marine Corps, the Air Force has remained steadfastly committed to the F-35.
Aboulafia said the F-15 and F-16 production lines have relied on foreign sales for two decades, and that the foreign market has largely supported fighter manufacturers in eras of Pentagon cutbacks.
“It is pretty remarkable when you think about it,” he said. “It’s been two decades of these lines being kept alive by foreign buyers. That’s unprecedented.”
During the post-Cold War reductions of the 1990s, foreign governments accounted for just more than 70 percent of U.S. fighter sales, compared to about one–third over the last 10 years when Pentagon spending was up, Aboulafia said.
The Middle East sales will extend production at Lockheed Martin’s Fort Worth, Texas, F-16 plant by three years to 2016, spokeswoman Laura Siebert said. “The Middle East will continue to be an area that we look at for growth,” she added. Boeing said the Saudi sale will lengthen F-15 production at its St. Louis facility to 2020 and that additional international interest should push production “well into the next decade.”
“Several customers have approached Boeing seeking information and a detailed understanding of the new capabilities of the F-15,” spokeswoman Karen Fincutter said.
Andrew Shapiro, the assistant secretary at the State Department for political and military affairs, told reporters last week that the Saudi-Boeing deal will pump $3.5 billion annually into the U.S. economy and support 50,000 jobs and 600 suppliers in 44 states.
“This will support jobs not only in the aerospace sector but also in our manufacturing base and support chain, which are all crucial for sustaining our national defense,” Shapiro said.
Jim Miller, principal deputy undersecretary of defense, said deliveries of the new F-15s to Saudi Arabia will begin in 2015 with the upgrades on the existing ones set for 2014. The combined work will last until at least 2025, he said.
Despite the problems with the F-35, there has also been growing international interest, most recently shown by Japan’s decision to buy 42 of the planes to replace its aging fleet of F-4s. The F-35 was selected over Boeing’s F/A-18 and Eurofighter’s Typhoon.