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23 February 2000
Byron K. Callan – Global Coordinator (1) 212 449-1394 Andrew Clifton: (44) 171 772-2539 David Ainsworth: (1) 212 449-1312 Suzanne Kecmer: (1) 212 449-6725 Pete Deighton – Marketing Analyst (44) 171 772-1890
Combat Fighter Aircraft Outlook
Replacement Needs, Exports Drive Upturn
Fighter aircraft production to increase For now, a balance between U.S. and Europe
Global Securities Research & Economics Group Global Fundamental Equity Research Department © Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Inc.
Combat Fighter Aircraft Outlook – 23 February 2000
Compared to our 1999 review of the outlook for combat fighter aircraft, our 2000 review shows some slippage in deliveries of major types in 2000-02 because of the timing of recent awards. Furthermore, we stopped projecting deliveries for the Boeing F-15, subsequent to unsuccessful competitions for Greece and Israel in 1999. However, our core view on this sector of the aerospace and defense market is fundamentally intact: • Replacement of older aircraft purchased in the 1970s and 1980s underpins production rate increases from 2001 through 2005, and probably through 2010. The current generation of multi-role combat fighter aircraft is much more capable than ones they replace. Introduction of these new aircraft could prompt additional purchases in regions where military tensions remain high. Military aircraft programs are important to firms we follow, with BAE SYSTEMS, Boeing and Northrop Grumman deriving the highest percentage of sales from this activity. For 2000, we estimate that none of the companies we follow will derive more than 25% of its sales from advanced fighter aircraft production.
and the outcome of several international campaigns. The integration of the two major European defense suppliers will be closely watched because of issues that bedeviled U.S. majors in 1998 (Boeing) and 1999 (Raytheon and Lockheed Martin). A related issue is how military aircraft production is sorted out, particularly Eurofighter. EADS brings Mirage 2000, Rafale and Eurofighter under one corporation’s control. Prototypes of the Joint Strike Fighter should be flying this year and a decision on the program is expected in March 2001. This is the largest military aircraft program ever and an important issue for investors is whether the DoD sticks with its original plan for a winner-take-all contract award or if the DoD modifies its acquisition strategy. The acquisition strategy could be altered to ensure that the loser in JSF survives and so that there is more competition in the military aircraft market. Key campaigns to watch include a contract from the UAE for F-16 fighters and a small, but politically important, campaign in Norway that pits the F-16 against the Eurofighter. The UAE contract is important to get the Block 60 version of the F-16 underway. Finally, the outcome of the U.K. BVRAAM/Meteor missile should be watched because of its implications for Eurofighter. One advantage the U.S. has had in international campaigns has been the ability to offer fighters with AMRAAM (Advanced Medium Range Airto-Air Missile). Equipping Eurofighter with an improved medium range air-to-air missile could make it a more potent competitor in the 2008 and beyond time period when the missile is in production.
What Was New in 1999
Last year’s report looked at the motif of transition and continuity. In hindsight, there was more transition than there was continuity: • • • • Production of the Boeing F-15 will probably end in 2000. The outlook for the Lockheed Martin F-16 was enhanced with wins in Greece and Israel. Aerospatiale Matra and Daimler Chrysler announced a merger, to form EADS. The U.S. Congress moved to cut funding for the Lockheed Martin/Boeing F-22 fighter. For many investors, this raised a debate that has been underway for quite some time in Washington over the affordability of tactical fighter aircraft programs. An air war that NATO fought against Yugoslavia was initially heralded as the triumph of air power. However, more recent assessments suggest that air power still has a way to go in delivering its own military victories.
A Better Balance
For the next five years, Europe’s combat aircraft offerings should be fairly balanced with those of the U.S. The U.S. F22 is too expensive for many nations, although it could eventually be bought by the handful of countries that purchased the F-15 (Israel, Japan, and Saudi Arabia). We have not seen the F/A-18E/F come up in many major export campaigns. This leaves that F-16 as the major contender of U.S. aircraft designs that are now in production. In contrast to prior decades, Europe has a broader array of offerings. An agreement reached in 1995 for BAE SYSTEMS to market the Gripen opens this aircraft to a wider set of customers. Europe is also offering the Mirage 2000, Rafale and Eurofighter. Joint Strike Fighter could have a very powerful impact on the market, beginning in 2003-05. But this will depend on its costs and whether it is adhering to a schedule for design and production. Europe now has no direct answer to JSF, although BAE SYSTEMS is a partner on the Lockheed Martin team.
What to Watch for in 2000
For 2000, the most important issues in the tactical combat aircraft market include the integration of EADS and of BAE SYSTEMS, the status of the Joint Strike Fighter program
Combat Fighter Aircraft Outlook – 23 February 2000
Forecast Shows Trough Deliveries in 2000-01
We estimate that total deliveries of U.S.-built multi-role combat aircraft could trough in 2001 at 64 aircraft. This trough occurs because of our assumption that F-15 production ends and because of a further decline in F-16 production. However, we estimate that deliveries rise back to 160-170 aircraft in 2004-05 on F-16 exports and rampups on domestic purchases of F-22s and F/A-18E/Fs. For Europe, we estimate that deliveries will hover at approximately 30 aircraft in 2000-01, but that they should climb to over 100 aircraft by 2004, mainly because of production of the Eurofighter.
The conclusions of this report are in accord with our investment stances and earnings estimates for firms we follow. The need to replace aging military equipment should result in fairly steady growth for the sector in the 2000s. Slips in the timing of contract awards do not detract from this thesis.
Byron K. Callan.................................................................. (1) 212 449-1394 Global Coordinator Byron_Callan@ml.com Canada Ihor Danyliuk........................................................................ Ihor_Danyliuk@ca.ml.com Singapore Chey Hoon Sim.................................................................... CheyHoon_Sim@ml.com UK & Continental Europe Andrew Clifton...................................................................... (44) 171 772-2539 Andrew_Clifton@ml.com United States David M. Ainsworth.............................................................. (1) 212 449-1312 David_Ainsworth@ml.com Suzanne E. Kecmer............................................................. (1) 212 449-6725 Suzanne_Kecmer@ml.com Marketing Analyst Pete Deighton ...................................................................... (44) 171 772-1890 Pete_Deighton@ml.com (65) 330-7205 (416) 369-2818
S.Combat Fighter Aircraft Outlook – 23 February 2000 CONTENTS n Section Executive Summary Forecast and Investment Issues Status of the World’s Inventory: Who Owns What 1999 Campaigns and Wars: What Changed? 2000 Focus on Funding Debates. Page 2 5 11 3. Competitions and EADS Competitions – A Better Balance Between Europe and the U. Appendix: Aircraft Data 1. 26 4 . 22 6. 17 4. 2. 20 5.
This has resulted 5 . For 1995. as presented by the IISS (International Institute for Strategic Studies). we could have included Newport News in Table 1 because aircraft carriers would be ineffective without aircraft. Companies are directly impacted by new production of fighters. If the whole contract value were to be included. although it is heavily centered upon military aircraft. We review the data in order to examine broader investment themes. then the figure for BAE would be 40%. In October. avionics and radar Sales of air-to-air and air-to-ground missiles and munitions Note that the BAE figure in Table 1 excludes any of the estimated revenues from the Al Yamamah programs with Saudi Arabia. Forecast and Investment Issues We have believed that the replacement of older fighter aircraft would be a principal driver of new combat aircraft demand in the future.S. the IISS releases a publication called “The Military Balance” which has a wealth of information on the defense budgets. The Direct and Indirect Importance of Fighter Aircraft to Defense/Aerospace Stocks Fighter and bomber aircraft programs contribute 10%-25% of sales for select companies we follow Fighter and bomber aircraft programs account for significant sales and operating profits of many of the companies we follow. fighter aircraft units produced to increase from a low of 64 units in 2001 to 160-170 units by 2005.800 fighter aircraft in the inventories of militaries and for 1999. 1999 saw several campaigns decided that underscored this contention. They are also indirectly impacted by sales of electronics. military force structure and individual equipment holdings of countries. These programs also play a role in ballistic missile defense. An Aging Inventory Needs To Be Replaced World inventory of fighters declined in1999 Each year we aggregate data on the combat aircraft holdings of countries. we estimate the total declined to 22. Table 1 shows the estimated contribution of combat aircraft-related programs to the 2000 sales estimates for some of the companies we follow. Arguably.Combat Fighter Aircraft Outlook – 23 February 2000 1. This is now primarily a support and services operations. weapons and services that equip and sustain fighter and bomber inventories. Table 1 includes our estimate of: • • • Sales from aircraft prime and major subcontractor positions Sales of airborne electronic warfare. The total number of combat aircraft in inventory is declining. European production could increase from 30 units to approximately 110 units over the same period. based on IISS data.700. Table 1: Estimated 2000 Sales Contribution of Fighter Aircraft-Related Products and Services Company BAE SYSTEMS Northrop Grumman Boeing Lockheed Martin EADS Source: MLPF&S Percent of sales 25% 19% 17% 12% 10% We have excluded surface-to-air missile sales from programs such as Raytheon’s Patriot and national air defense systems. but many firms we follow benefit. There is no pure play on military aircraft. we estimated that there were 26. We have not included companies that derive less than an estimated 10% of sales from combat aircraft programs. We expect U.
Combat Fighter Aircraft Outlook – 23 February 2000 mostly from the retirement of aircraft by countries that comprise the former Soviet Union and China.355 1. Countries with annual defense expenditures of less than $1 billion are not in a position to buy Western-built multi-role fighter aircraft. however.S.554 4. due to changes in estimates made by IISS. MLPF&S 1995 4.747 2.S.525 1998 3. 6 .988 2.700 1996 4.076 3.073 3.239 1997 4. U. in part. We estimate that approximately 10% of the world’s inventory of fighters are in the hands of countries that could not afford to replace them.743 3. Numbers have jumped around. so IISS relies on a number of sources. Year-over-year changes are imprecise. There have been instances of Russian sales of advanced MiG-29s to Bangladesh and of Su-27s to Eritrea and Ethiopia. we think that these cases probably involve “white tails” or aircraft sold out of Russian air force inventory.589 2.427 2.478 1999 4. Table 2: How Inventories of Fighters Have Changed United States China Russia Source: IISS. Official U. data does not show a drop from 1997 to 1998. China does not disclose the size of its armed forces. data may have been incorrect for 1998.744 • • Demand for new combat aircraft is driven mainly by the need to replace older aircraft purchased in the 1970s and 1980s.090 4.
F/A-18C/D Boeing F/A-18E/F U.Combat Fighter Aircraft Outlook – 23 February 2000 Forecast U. This is due to delays in contracts. We no longer have an “Other” line item for F-16s • • Table 3: U.S. fighter deliveries: • • We show production of the Boeing F-15 ending in 2000. We assume that Taiwan and Turkey will place follow-on orders for F-16s. there is nothing in Lockheed Martin’s backlog to suggest this.S.S. UAE Subtotal. we show lower Lockheed Martin F-16 deliveries in 2000 and 2001. fighters for 2000-05.S. Then Sharp Rebound Table 3 shows our forecast of deliveries of U. when we last reviewed the outlook for U. Deliveries Trough in 2001 1998 Lockheed Martin F-16 Bahrain Egypt Greece Israel Singapore South Korea Taiwan Turkey U. fighters Source: MLPF&S 1999 10 5 35 36 20 5 111 - 2000E 10 10 7 8 5 40 5 2001E 20 5 25 3 2002E 4 15 10 29 7 2003E 30 12 20 10 25 97 12 2004E 15 18 20 25 10 25 113 22 2005E 25 20 25 10 25 105 22 20 18 30 55 22 1 145 1 7 15 18 40 7 15 18 40 7 5 12 24 - - - - - 6 10 13 29 6 17 23 18 18 - - - - - 215 12 186 24 111 36 64 36 72 36 145 36 171 36 163 7 . Total U. Finland Switzerland Subtotal. particularly for a UAE buy. Currently. Israel Saudi Arabia Other Subtotal. Delivery Trough in 2001.S. F-16 Lockheed Martin F-22 Boeing F-15 U.S.S. F-15 Boeing F/A-18C/D U. Compared to our year-ago forecast.S.S. There have been several changes from the forecast we published in February 1999.
Gripen Dassault Mirage 2000 France Greece Qatar UAE Subtotal. can be 30 years or more. Mirage 2000 Dassault Rafale France Other Subtotal. • • Table 4: European Production Rate Ramp Up Driven by Eurofighter 1998 Eurofighter/Typhoon Germany Greece Italy Spain U. Rafale Total European production Source: MLPF&S 1999 - 2000E - 2001E 1 1 1 3 2002E 5 6 5 6 22 2003E 12 9 6 15 42 2004E 15 10 10 7 20 10 72 2005E 15 10 10 7 20 10 72 - 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 10 6 16 10 3 13 10 10 5 5 5 5 10 5 15 20 10 10 - - - 4 5 1 9 15 14 32 29 4 31 5 30 1 50 9 88 15 114 14 103 Investment Recommendations We think it is important for investors to recognize that defense is a business that tends to operate on very long cycles. There are slight variations in the data for Dassault. A sale of 15 Aerospatiale-Dassault Mirage 2000s to Greece that was announced in 1999 should enable the company to avoid a production line break in the program.Combat Fighter Aircraft Outlook – 23 February 2000 Deliveries of European-Built Fighters Should Climb Sharply from 2000 to 2005 Table 4 shows our forecast of deliveries of European fighters for 2000-05. Sweden should take approximately 17 per annum. Eurofighter Saab JAS Gripen (BAe) Sweden South Africa Subtotal. from design to retirement of the last production unit. we have: • Reduced annual deliveries of Gripens. compared to our prior estimate of 2003.K. The investment conclusions we have noted in this report do not differ all that much from prior years’ reports we have published on this subject: • An upturn in military aircraft production is emerging and production rates may 8 . We added Greece to the Eurofighter/Typhoon delivery schedule based on its order last year. Other Subtotal. Compared to last year’s forecast. South African deliveries will not start until 2007. The life span of a fighter aircraft.
Additional exposure to the combat aircraft space is gained from Aerospatiale Matra’s 37. and is the prime contractor on the C-17 transport (which is not dealt with in this report). These are expected to be forthcoming over the next few months as it prepares for its stock offerings. n BAE SYSTEMS We recently upgraded our opinion The Group is the leading European company in the combat aircraft industry. the F/A-18E/F fighter and has one-third of the value of the F-22. it manufactures the Hawk. This will introduce the additional exposure of those two companies’ stakes in Eurofighter.5% of the consortium). Capital structure remains conservative and completion of the Hughes Satellite buy in mid-2000 could again enable the company to buy back its shares.5% interest in the enlarged missiles business. radar and electronic warfare. Our forecast suggests that growth in aircraft deliveries probably will not begin to be evidenced by the financial results of companies we follow until 2001. The Group has recently completed the acquisition of Marconi Electronic Systems. In addition. It remains to be seen how the new company will address the issue of these two competing products in the business portfolio. systems and parts that are used on aircraft. Boeing is also competing for the Joint Strike Fighter program. mainly because we expect improvement in commercial aircraft margin which should more than offset a decline in deliveries of large civil aircraft. with the Harrier and Tornado platforms in operation. 9 . The Group is scheduled to merge with DaimlerChrysler Aerospace (Dasa) and Spain’s Casa to form the European Aeronautic.S. which are expected to occur in the May/June period. Defense and Space company (EADS) by the end of June. which manufactures a range of air-to-air and air-to-ground missiles.5% stake in Matra BAe Dynamics. but commercial aerospace is key investment theme Boeing’s valuation is currently driven mainly by expectations for its commercial aircraft deliveries and operating performance. which has some strong market positions in military aircraft avionics. n Boeing Fighters important. the manufacturer of the Mirage and Rafale. It also has a 37. This company’s main exposure to military aircraft is its 46% ownership of Dassault Aviation. Its main product is now the Eurofighter (it owns 37. which are 30% and 13% respectively. Our projections for Boeing’s military aircraft business show a stable sales outlook. which can be used as a trainer aircraft and/or a light attack vehicle. Production of the F/A-18C/D and F-15 is winding down. strategy and prospects of the new Group. • This upturn provides visibility to the earnings and cash flow streams of companies that build fighter aircraft or that supply weapons. We have mixed investment opinions on companies with direct and indirect exposure to fighter aircraft and bomber markets. We await more detailed news on the financial structure. A successful implementation of this cross-border merger should also allow further benefits in the areas of missiles. We rate Boeing Accumulate/Buy. However.Combat Fighter Aircraft Outlook – 23 February 2000 not peak until late this decade. space and helicopters. We believe there is considerable potential arising from the new Group’s 80% ownership of Airbus and the scope for restructuring the entity. Rafale and Eurofighter Our opinion on Aerospatiale Matra is currently Accumulate. Matra BAe Dynamics. Boeing is the leading military aircraft supplier in the U. Here are investment opinion summaries of major military aircraft and electronic suppliers we cover: n Aerospatiale Matra/EADS Key fighter programs are Mirage 2000.
timing of the COMSAT acquisition and space activities. Key Lockheed Martin military fighter programs include the F-16 and F-22. Northrop Grumman is responsible for approximately one-half the value of the F/A-18E/F aircraft and supports older Grumman and Northrop models. Lockheed Martin supports the F-117 stealth strike aircraft and is competing for the Joint Strike Fighter program. n Lockheed Martin Resolution of near-term issues could uncover earnings power Our opinion of Lockheed Martin is Neutral/Buy. Issues include the timing of a contract award from the UAE for F-16 fighters. and we feel that the market is now being overly cautious in its assessment of the integration of Marconi over the next year.Combat Fighter Aircraft Outlook – 23 February 2000 We have recently upgraded our recommendation from Neutral to Buy on account of the poor performance of the shares over the last 12-15 months. Sales and profit margin expectations for the C-130J airlifter proved to be too optimistic and there were several issues that arose in Space and in Space diversification programs. n Northrop Grumman Driven by electronics growth We rate Northrop Grumman Buy mainly because of growth prospects in electronics. The decline in B-2 bomber activity is bottoming out in 2000 and backlog growth this year should herald an upturn in electronics sales for 2001-03. Our opinion is Neutral/Buy mainly because we would like to see several near-term issues resolved at the company and because 2000 earnings are heavily skewed to the fourth quarter. Additionally. We expect growth in sales from both programs in the 2001-04 timeframe. Lockheed Martin had a difficult 1998-99 for reasons that had little to do fighter aircraft programs. 10 . It also is a leading provider of electronic warfare systems. Northrop Grumman provides the APG-68 radar for the F-16 and the APG-7x radar for the F-22. The company is now being valued at an average 20% discount to global peer companies.
Combat Fighter Aircraft Outlook – 23 February 2000 2. A-10. although they are a factor when discussing replacement demand. include the U. A-7. we have included medium and strategic bombers because these aircraft are now used mainly for conventional (non-nuclear) missions.S. In particular. The exceptions to this age cohort are the British Aerospace Harrier/Boeing AV-8B and the Sukhoi Su-25.S. in addition to some older designs that are still quite capable. This year. However. Boeing F-15 and F/A-18 and Lockheed Martin F-16 and F-117. Grumman F-14. We have also excluded trainers from consideration. MiG-AT. This compared to 23. Status of World’s Inventory: Who Owns What Based on data gathered by IISS. Russian designs include the MiG-23/-27 and the MiG-25. For our analysis. and maritime patrol aircraft.700 fighters and 997 bombers. the British Aerospace Hawk can be used as a trainer or light attack/air defense aircraft and is replacing aging supersonic fighters. “front-line. in some instances. We have included the B-52 bomber in this category. the world’s militaries had 22. surveillance. has the most modern inventory of military aircraft. Russia’s aircraft holdings continue to decline and China’s holdings remain overwhelmingly obsolete. European-built aircraft include the Saab Viggen and the Sepcat Jaguar.” We have modified “front-line” and instead refer to aircraft in this category as “modern. fighter/bomber. n Useful Useful aircraft designed in 1960s Useful includes fighters and specialized strike aircraft that tend to be of 1960s and 1970s vintage although. Versions of these aircraft built in the late 1980s and 1990s can operate in all types of weather conditions and with the exception of the F-14. Saab JAS Gripen and French Dassault-built Mirage 2000 and Rafale.S. such as transports.700 fighters and 863 bombers in mid-1998. Europe is beginning to modernize aircraft holdings procured in the 1960s and 1970s. and Su-24. in this category. designs were conceived in the late 1950s.S. its electronic self-defense system and ability to carry large quantities of stand-off smart weapons make it very useful. F-111 and F-4. F-117. we have used a typology that Rand Corporation used in a 1995 report entitled “Trends in Global Airpower. as evidenced by its deployment to threaten Iraq in 1997 and 1998.” Rand classified aircraft into three categories. useful and old. • • We have not considered the market for specialized support aircraft. Stage Setting Focus is on advanced combat aircraft Our definition of the combat aircraft market encompasses supersonic and subsonic advanced fighter.” n Modern Most modern designs stem from 1970s This category includes multi-role aircraft (aircraft that can attack ground targets and dogfight with other fighters) built in the 1980s and 1990s. the U.” which is produced annually by the London-based International Institute for Strategic Studies (IISS). even though it is an ancient aircraft. The data in this report on aircraft holdings of states is from the “1999-2000 Military Balance. Tornado. Russian designs are the Sukhoi Su-27/-30 and Su-24 and the Mikoyan MiG-29 and MiG-31. and interceptor combat aircraft. built types include the A-6. all are still in production. B-1 and B-2 and the Russian Tupolev Tu-22. such as the British Aerospace Hawk. U. The Russian Tu-95 is considered "useful" as well. we estimate that in mid-1999. These aircraft types generally do not compete against multi-role aircraft. as well as light attack aircraft/trainers. such as the Raytheon JPATS (now called the T-4 Texan) program. Bombers included as modern are the U. By far. Eurofighter. 11 . Fighters. European-built aircraft are the Panavia Tornado.
Where we believe appropriate. particularly when upgraded with more modern avionics and air-to-air missiles. The H-5 is the Chinese version of the Russian Illyushin Il-28. has.Combat Fighter Aircraft Outlook – 23 February 2000 n Old/Obsolescent Some designs can be traced back to late 1940s Old includes aircraft designs from the 1940s and 1950s. These instances include estimates for Afghanistan. 12 . based on new information. compared to 1998. the most modern force of tactical combat aircraft in the world. IISS can change inventory totals.055 in 1999. but our counting of data in the “1999/2000 Military Balance” shows the total number of fighters declined by approximately 1.195 in 1998 to 1.795 in 1999) and a decline in Russia’s inventory of fighters from 2. In terms of the quantities in service. which first entered production in 1955. Total Inventory of Aircraft Fell From 1998 China and Russia continue to retire aircraft The total inventory of combat aircraft fell in 1999. in this category. the aircraft could be included in “Useful”. Cuba.737 from 23. Other types include the MiG-21 and a Chinese copy called the J-7/F-7 (“J” if it flies within China or “F” if it was exported).666 of which could be considered modern. We have included the Northrop F-5. we have made some adjustments to IISS’s estimates of aircraft holdings. by far. 3.000 to 22. Has Largest. We suspect that the decline in J-6 figures may have to do with a reassessment of the fighter inventory in China.756 in 1998 to 2. U. Chinese H-5 and H-6 are included in "Old". Most Modern Force Exhibit 1 shows that the U. a tactical bomber that first flew in 1948 and the H-6 is the Chinese version of the Tupolev Tu-16. the Lockheed-built F-104. These mainly involve the holdings of developing countries and/or in situations where there is more recent data available. because of its capabilities. The biggest single cause of the decline was in the inventory of J-6 aircraft in China (from 2.S. As of mid-1999. none of which are likely to be markets for Western aircraft in the coming years. Iran and Iraq. Figures for Russia’s fleet of MiG-31s and Su-24s probably have to do with reductions in the size its holdings. Dassault Mirage III/-5 and the Sukhoi7/17/20/22.694 in 1998. This is a copy of the MiG-19. because the basic design stems from the 1950s.254 aircraft.S. IISS data we counted shows a total inventory of 4. the largest single type is the Chinese J-6. However. The Tu-16 first flew in 1952.
500 Number of modern aircraft 3.000 2. Air defense systems must be considered. The +1.500 2. No other country comes remotely close to this size inventory.S. it is interesting to note that the U. Distance and availability of air bases will limit the number of aircraft that can be deployed. • U. the U. it can be easily cut back.S ou th Sp ai n B el ar Sw us e U zb de ek n is A tan us tr D ali en a m ar k Source: MLPF&S. • Within this context. inventory. We think that this judgement is incorrect for several reasons: Size alone is not a pre-condition for success • It does not account for the limitations imposed by geography.000 1.000 3. 13 .S. Russian-supplied air defense equipment has become much more sophisticated and the risks posed by manportable and by systems carried on light armored vehicles has made operations below 15. has the most modern Air Force • • Investors may conclude that because of the magnitude of the U. Air Force deployed approximately 15% of its tactical fighter force to deal with Yugoslavia in 1999. but the magnitude of the forces needed to accomplish this was surprising. IISS U ni te d In addition to a modern fleet of fighters and bombers. signal intelligence gathering and electronic warfare aircraft.000 feet risky.S.000 aircraft that were deployed against Yugoslavia ultimately contributed to the withdrawal of the Yugoslav Army from Kosovo. The U.S. This was a country that had 75-80 supersonic fighters at the start of the conflict.Combat Fighter Aircraft Outlook – 23 February 2000 Exhibit 1: U. including AWACS and airborne early warning. cannot bring its entire inventory of aircraft to bear on a single country. also has: • A dedicated fleet of specialized support aircraft.500 1. The Air Force has 547 KC-135 tankers (this is a military aircraft that was the basis for the Boeing 707).S. Some of the highest pilot training time in the world. Made extensive investments in the modernization of the munitions that are carried by its aircraft. A fleet of tankers. in light of the holdings of other countries.000 500 0 St at e R s us G sia er m an Ta y iw an Is ra e Sa Ukr l ud ain U ni te i Ar e d ab K in ia gd om Fr an c Tu e rk ey N Ja et pa he n rla nd s Eg yp C an t ad a Ita G ly re ec e In B dia e K or lgi ea um . Has Largest Fleet of Modern Combat Aircraft 4. of which all but 17 were MiG-21s.S.
000 3. Exhibit 3: Old Aircraft Are Still Big Part of World Inventory Old 36% Modern 38% Useful 26% Source: MLPF&S.500 4.500 1. MLPF&S Number of aircraft Large Quantities of 1950s-Designed Aircraft Remain in Service Exhibit 3 shows that a surprising feature of the world’s inventory of tactical combat aircraft is the high percentage of aircraft designs from the 1950s that are still in service.500 3.000 Useful 1. Russia still – on paper – has the third largest air force in the world. The Top 25 Largest Combat Aircraft Fleets 4. useful or old aircraft. but its almost entirely comprised of old designs.Combat Fighter Aircraft Outlook – 23 February 2000 Exhibit 2 shows the 25 largest combat aircraft fleets in the world. Exhibit 2.000 500 0 United States Russia Taiw an Ukraine Syria Egypt Israel Greece Libya Poland Japan Sweden Iran Modern Old Source: IISS. Total figures have been broken down by holdings of modern.500 2. IISS 14 .000 2. China has a large air force.
such as SCUD.500 2. Iraq. Additionally.000 2. the J-7. which appeals to many countries. either because the West will not sell or because they want to foster their own aerospace industries and will instead rely on indigenous designs. other than just buying new aircraft: • Ballistic missiles. Some countries simply will not be able to afford new multi-role combat aircraft and others will not be buying from Western countries. Yugoslavia and Iran. • • It is unlikely that Western-built aircraft will be sold to Russia.Combat Fighter Aircraft Outlook – 23 February 2000 The MiG-21 and Chinese version of this aircraft. countries with annual defense budgets of less than $1 billion are unlikely to be able to afford new Western-built multi-role combat aircraft. in terms of long-term replacement. 15 . Furthermore. This is particularly true of countries that face internal insurgencies and/or expect that any major military contingency they find themselves in will be in an alliance with other advanced military powers. there are other options available to countries.000 1. Another option is to buy attack helicopters to replace fighters. The military utility of these missiles is limited because of their accuracy and size of the warhead they carry.000 aircraft in use around the world does not mean that there will be sales over the next 20 years of aircraft to replace all these that are now in service. leaves 60% of the market available to Western suppliers. China. excluding “offlimits” states and countries with minimal levels of defense spending. have offered greater assurance of striking at threats at a fraction of the cost of maintaining a squadron or two of multi-role fighters. The sophistication and capability of attack helicopters also entails that they are contenders in fighter aircraft replacement schemes. Exhibit 4: Aircraft Types of Which More Than 800 Are In Use 3. Exhibit 5 shows that.000 500 0 MiG-21/F-7/J7 F-16 J-6 F-5 F-15 F/A-18 MiG-29 MiG-23/-27 Su-24 F-4 Tornado Source: MLPF&S. IISS What’s The Available Market? Countries considering new aircraft have many options Just because there are more than 22. Slovakia stated its plans to do this in 1999. Belarus and a number of smaller states. represent the largest single aircraft type in service. including North Korea. subsonic fighters.500 3. Ukraine.500 1. such as the BAE SYSTEMS’s Hawk. there are light. Finally.
60% of the Market. Is Open to the West Unavailable to West 30% Available to West 60% Cannot Afford 10% Source: MLPF&S 16 .Combat Fighter Aircraft Outlook – 23 February 2000 Exhibit 5. By Units.
its decision to 17 . • • • • • • One of the great ironies of the conflict was that Rep. The air forces of most European countries were of limited use because of the lack of all-weather day/night target designators. the big winners of 1999 were the F-16 and the Eurofighter.S. Unmanned aerial vehicles were used for targeting and reconnaissance. Reluctance to engage low-level air defense systems.S. NATO flew 37..S. there have not been commensurate moves to step up spending on tankers. B-2 bombers were used for strikes on heavily defended portions of Yugoslavia. The “lessons learned” from the conflict were somewhat contradictory and so far. F-16 and Eurofighter Score Big Wins F-16 sweeps Greece. The success of NATO air power raised the issue of whether more modern fighters were needed. Utility of UAVs. The U. it announced its intention to buy 60-90 Eurofighters.S. The inability of NATO forces to locate stationary or dispersed tactical military targets. The other irony is that there has only been limited movement within Europe to narrow the gap between the defense capabilities of its armed forces and those of the U. Israel – Eurofighter gets first export As we discussed in our forecast above. The Boeing F-15 did not score any export victories in 1999 and hence. The utility of strategic bombers. Greece will be an industrial partner on the program as a result of this. NATO has mixed implications for airpower One of the key events that has impacted the outlook for military aircraft in 1999 was the 78-day air war between NATO and Yugoslavia. with initial deliveries beginning in 2005. while Yugoslavia flew 10 air intercept missions during the war. Yugoslavia Highlighted Airpower Yugoslavia v. The need for numbers. Jerry Lewis (R-CA) used the experience as a justification to block procurement funding of the F-22. electronic warfare and support measures aircraft and space-based assets that could make this force independent of the U. but the need for continuous pressure resulted in a far greater commitment than was originally envisioned. Importance of GPS-guided weapons. However. 1999 Campaigns and Wars: What Changed? Military conflicts again highlighted the value of advance aerospace systems in 1999. In the U. The number of aircraft committed to the campaign was initially small. Greece also announced in April. These lessons included: • The very wide disparity between U.000 sorties (one-aircraft mission).S. smart weapons and electronic warfare systems. and European aerospace military capabilities. The Mirage 2000 also had a decent year and a selection by Greece enabled Dassault to bridge a potential line break in 2001. flew in eighty percent of the strike missions.Combat Fighter Aircraft Outlook – 23 February 2000 3. have not lived up to initial investor expectations. • Greek decisions in 1999 on the modernization of its air force were significant. a funding cut to the F-22 program underscored tension over tactical fighter modernization. munitions. In early 1999. There has been a move to create an independent military force in Europe that would be separate it from NATO. NATO lost just two aircraft during the entire campaign (an F-117 and an F-16) and otherwise dominated airspace over Yugoslavia. its production will likely end in 2000-01.
Egypt and Saudi Arabia. Deliveries begin in 2001 and should last about 15 months. A contract was signed on January 14 for 50 F-16s. These aircraft will replace A-4s and Kfirs that Israel now operates. have been very controversial because of the budget resources they consume and because of questions about the wisdom of sustaining a large inventory of relatively short-range fighter aircraft. The F-22 Funding Debate F-22 should be procured despite 1999 controversy One of the surprising developments of 1999 was that the Lockheed Martin/Boeing F-22 fighter came under attack in Congress. Perhaps the issue that it does most raise is whether the two parties are brought together through the existing BAE SYSTEMS/Dassault relationship. Subsequently. France’s Aerospatiale Matra and Germany’s Dasa announced their intention to merge to create EADS. Tactical combat aircraft modernization programs in the U.5% of Eurofighter) in a shared military aircraft venture. A contract was concluded with Egypt in August 1999 for 24 F-16C/Ds. given changing military threats. but these probably will not occur for another 2-3 years. which would then own 62. Deliveries will begin in early 2003. Note that there are currently discussions underway investigating the inclusion of Finmeccanica (which owns 19. Greece also announced that it would buy 15 Mirage 2000-5s. but the cost of introducing a new aircraft was a factor in the final decision.34 billion. It will result in EADS holding a large. We are unsure as to how integrated the 2 competing platforms can be within the new corporate structure. Israel has options for another 60 F-16s. There is the potential for sales to South Korea.Combat Fighter Aircraft Outlook – 23 February 2000 buy more than 50 Block 50 F-16s. These include the nature of the ownership of each product. the perceived respective strengths in export markets and the existing commitment for each type. Aerospatiale Matra owns 46% of Dassault Aviation (manufacturer of the Mirage and Rafale). although several barriers can be envisaged. • The End of F-15 Production—Or Just a Line Break? Boeing’s loss of competitions in Greece and Israel in 1999 entailed a decision by the company to write-off $270 million pretax in inventory of parts that were procured for 24 F-15s the company anticipated selling in 2000. with a value of $1. In the meantime.5% of the program. The cost of restarting the F-15 line and the availability of other fighter aircraft should limit the F-15s prospects. Greece operates 40 F-16C/Ds. We believe that the Boeing F-15 has reached the end of the line and we do not forecast future sales.S. even theoretically. if minority. The formation of EADS does not alter our view that there will only be one European next generation product. stake in the 2 major European military aircraft manufacturers. The combination is expected to complete by the middle of this year. with Dasa and Casa holding stakes in the Eurofighter consortium of 30% and 13% respectively. manufacturing efficiencies would not appear to be achievable. EADS and Implications for Fighter Market EADS needs to sort out offerings On October 15. agreement has been reached to include Spain’s Casa. 18 . • Israel selected the F-16 for its fighter modernization program. The F-15 looked like it had a good chance in this competition. valued at $324 million to Lockheed Martin. we expect Eurofighter and Rafale to co-exist for at least the next decade. The Italian company is also in discussions with BAE SYSTEMS regarding this issue. In view of the advance development and production stage of each product. or through EADS. It is possible that some arrangement could be arrived at regarding sales and marketing in export markets.
S. Russian aircraft are as capable as current generation fighters and introduction of these aircraft can spur regional modernization of air forces and air defense systems. These aircraft are comparable to the F-15. but the issue highlighted the extent of debate over next generation fighter aircraft. 19 . This set off all sorts of alarm bells that rang even louder when the House passed an appropriations bill that included the subcommittee recommendation. Sukhoi is also delivering aircraft Su-27s to Vietnam and is providing kits for license assembly of 200 Su-27s for China. In 1999 it delivered Sukhoi 30s to India and concluded a contract with China for a sale of 50 Su-30s. Of the two. VPK Sukhoi has a stronger export program underway. who heads the defense procurement subcommittee of the House Appropriations Committee proposed zeroing a $1. Their sales efforts have created competition from time to time (Malaysia is one example) for European and U.8 billion procurement request for the F-22. Rep. Russian Sales: VPK Sukhoi Shines Russia exports highly advanced fighters It is important for investors to keep an eye on how Russia’s aircraft manufacturers are doing. There are two major Russian military suppliers—VPK Sukhoi and MIG Military Aircraft. A compromise was worked out between the House and Senate.Combat Fighter Aircraft Outlook – 23 February 2000 In July. Jerry Lewis (R-CA). firms.
Both companies should be flying prototypes this summer and a March 2001 down-select is anticipated. including: • • • It needs 50% fewer tankers to operate than an F-15. in terms of its total value. planned to purchase 3. others have questioned this and pointed out that air power was incapable of preventing “ethnic cleansing. In Europe. advances in stand-off weapons. The size of the investment will attract attention. It is far more capable of engaging hostile aircraft and operating over hostile territory than current generation fighters.S. another that can land on an aircraft carrier and another with vertical take-off capability. Competitions and EADS The debate over tactical aircraft modernization funding should continue in 2000 in the U. Russia’s use of airpower in Chechnya suggests that other nations are adopting NATO war-fighting models. Other branches of the military have competing modernization needs. The Air Force intends to buy 1. the focus remains on restructuring and how EADS could impact fighter programs. Unit costs should decline as aircraft production matures. although we do not believe that this aircraft program will again take the kind of flak thrown at it in 1999. fighter modernization will continue in 2000 Modernization of U. Joint Strike Fighter remains the biggest potential fighter program ever. Investors finally saw this debate spill over the Beltway (a highway that encircles Washington. 609 and the U. DC and parts of northern Virginia and Maryland) this past summer when F-22 funding was cut. tactical combat aircraft assets has been a much debated topic. The performance of the F/A-18E/F implies to us that its procurement is not likely to be a major debate in the coming year. However. Current plans call for three different versions of the JSF—one that will be used for conventional take-off and landings. Attention is likely to shift in 2000-2001 to the Joint Strike Fighter program. There are conflicting views on the efficiency of air power.” • • • The fulcrum of the debate is apt to be the F-22 in 2000. the Navy.763 JSFs. Outlook: Funding Debate Continues The debate on U. U. 480. 2000 Focus On Funding Debates.S. 60. The debate is likely to continue in 2000 and beyond for a number of reasons: • The Congressional Budget Office testified in March 1999 that over the next 27 years. the Marines Corps.K. Royal Navy.S.Combat Fighter Aircraft Outlook – 23 February 2000 4.700 new tactical fighters at a total cost of $340 billion. 20 . (such as cruise missiles). Supporters have mustered a number of arguments for the F-22. The war with Yugoslavia was hailed by some as a demonstration of the ability of airpower alone to affect the behavior of an adversary. the U. and the vulnerability of large air bases and aircraft carriers to missile attacks have raised questions about the wisdom of investing in relatively short-range combat aircraft inventories.S. Boeing’s entrant is designated the X-32 and Lockheed Martin’s is designated the X-35. Initial operating deployment is now planned for 2008.S. The changing geography of military threats. Joint Strike Fighter Developments Eyes on JSF in 2000 Boeing and Lockheed Martin are proceeding with development of their designs for the JSF (Joint Strike Fighter).
with Poland. Perhaps the most realistic scope for synergies lies between the Dasa and Casa Eurofighter activities.5% interest in Eurofighter with one of the other two parties. It has dawned on the DoD that the contractor that loses the JSF contract may exit from the fighter aircraft market and thereby create a monopoly supplier. Leader/Follower or Alternative Teaming at the Prime Level. Central Europe remains a potentially large market. We also doubt that JSF will be purchased in the numbers envisioned because of vulnerability of large airbases and/or aircraft carriers that could emerge in the post 2015 time period. This aircraft type has an agile beam radar. The UAE F-16 buy remains an important issue to watch for 2000. Discussions are understood to be currently underway with both parties. including Split Award. and are believed to encompass combinations possibly involving related activities such as avionics. Purchases are most likely to be made with initial lease of aircraft. EADS will have a significant stake in the 2 competing European fighter programs. Other International Developments Military and sales campaigns bear on outlook • Investors should watch for the ramifications of the heavy use of airpower by Russia in its campaign against Chechen rebel forces. as could New Zealand (although there is a political controversy over this).5%). We do not envisage any significant changes being made to the operating and sales structures of each platform in the current year. or if other acquisition strategies should be pursued.Combat Fighter Aircraft Outlook – 23 February 2000 The most interesting development to watch in 2000 regarding the Joint Strike Fighter is whether the DoD adheres to a plan to award a contract to build the aircraft to a single prime contractor. • • • 21 . Eurofighter and Rafale. Hungary all looking for new aircraft to replace aging Sovietsupplied models. internal navigation/targeting systems and other enhanced electronics. EADS European consolidation needs to be completed The new management of EADS have publicly stated that it is aiming for completion of the new entity by the end of June. Pre-offering presentations in the Spring will provide an opportunity for the new Group to specify its strategy and outlook in the sphere of military aircraft. Austria is also looking to replace older Saab-built aircraft. This could entail that there are more purchases of F-16s and F/A-18E/Fs and it could also impact the Marine Corps. maintenance and commercial aircraft. As we have mentioned above. the Czech Republic. forcing it to consider other ways to deliver close air support to its troops. The other main issue to be addressed is whether Finmeccanica chooses to combine its 19. Our view on Joint Strike Fighter is that there will probably be delays in the program due to funding and technical concerns. Malaysia is looking to buy Su-27s/-30s. The DoD has created a Joint Strike Fighter Review Group that is assessing how the two major competitors could behave if the existing acquisition strategy is maintained. The UAE had announced in 1998 that it wanted to buy up to 80 Block 60 versions of the F-16. although the advanced stage of the program will limit the scope for savings. Thailand may acquire second-hand F-16s. This is likely to bolster internal calls for modernization of the air force in Russia. EADS (43%) or BAE SYSTEMS (37. Asian markets are perking up again.
buys of tactical combat aircraft had fallen since the 1980s.S. the ability of countries to pay for military equipment and on changes in technology. Another. Additionally. One whose primary security threat is drug traffic. For example. New Threats and Old Aircraft Drive Demand The defense business is unique because there is not supply and demand of the sort that generates cycles in other businesses. whose threat is considered a possible attack by a highly developed adversary fielding bombers. the product offerings of Europe and the U.S. 22 . and countries in the former Soviet Union simply could not afford to replace military equipment. We see demand for military aircraft being driven by several factors over the next five years: n Need to replace older aircraft Replacement of older aircraft is key driver of demand The life of an aircraft is typically measured in hours of flight. an older aircraft is very likely to be less capable than current and future generation systems because of its lack of stealth and avionics. Different countries face different security threats. these aircraft sat on runway alert. The stresses of combat flight entail metal fatigue. Exhibit 6 shows how sharply U. or helicopters.Combat Fighter Aircraft Outlook – 23 February 2000 5. For the much of their lives. One reason that older aircraft remain in service is that they are probably not used that much. still operates B-52 bombers that were built in the early 1960s. It is quite possible to rebuild an airframe. multi-role aircraft and all supporting equipment will have a very different type of purchase in mind.000 hours of flight was expected before major airframe overhaul had to be done. sand and other environmental factors contribute to age.000 flight hour life-spans. the U.S. There are a number of new aircraft campaigns in 2000-05 and there could be follow-on buys by current customers.S. subsonic attack aircraft. 4. particularly given the costs to do so. Demand for military products typically rises and falls based on national security considerations.S. Competitions – A Better Balance Between Europe and the U. For early versions of the F-16. Salt water. may be more balanced in the 2000s. border security and internal insurrection may need only light. but it may not be at all economical. The end of the Cold War entailed a “procurement holiday” in Europe and the U. In contrast to prior decades. Current generation F-16s have 8.
political consideration A final consideration in military aircraft demand is that purchases can be made in order to better align a defense force with that of a larger power and/or in order to diversify supply sources. 23 . Fighter Buys Have Dropped Sharply 500 450 400 Number of tactical combat aircraft per FY budget 350 300 250 200 150 100 50 0 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: MLPF&S. n Harmonization with allies. for example. Russia has been selling the S-300 air defense system and Raytheon and Aerospatiale Matra are offering advanced surface to air missile systems. In Taiwan. fighters when it evaluated replacement of older Mirage aircraft. the modernization is based on the Su-27/-30 procurement and development of the J-10.S.Combat Fighter Aircraft Outlook – 23 February 2000 Exhibit 6. In this instance the modernization plans of each have fed off one another.S. chose not to include U. Similar patterns can be observed in the Middle East and Latin America. Congressional Budget Office n New military threats from modernization of other air forces Replacement can heighten regional tensions Replacing older aircraft with newer ones often entails stepped up capability. Taiwan and China are examples of countries that began modernizing antiquated air forces with far more capable equipment. In China’s case. U. it has centered on procurement of the F-16s and Mirage 2000s.000 feet and an unwillingness to risk casualties meant that attack helicopters were not deployed. This will impact aircraft demand because aircraft that are incapable of operating in a more strenuous air defense environment will need to be replaced. South Africa. Central European campaigns are unlikely to see Russian built aircraft chosen because they are not easily integrated into NATO. n Advances. Similarly. proliferation of air defense systems Air defenses make replacement necessary Yugoslav air defense kept NATO forces from operating below 15.
compared to prior decades. Gripen is similar to the F-16. Su-30.K. Eurofighter F-15. was able to offer lightweight fighters (the F-20. Mirage 2000 F-16. For the next 2-3 years. and Europe. to offer AMRAAM missiles that allowed aircraft to engage others at far greater ranges than aircraft equipped with European-built missiles.Combat Fighter Aircraft Outlook – 23 February 2000 Upcoming Campaigns Table 5 shows upcoming campaigns for tactical combat aircraft. The Mirage 2000 was first introduced in 1985 and most of the buying seems limited to countries that already own the aircraft and are buying it because of attrition in their fleets. and Europe Europe’s offerings are more evenly matched with U. in 2000 Table 6 captures a change that we believe is important to consider in the coming decade – namely that there is a balance between the offerings of the U. The competitive landscape thus differs somewhat. not an agile beam radar). Eurofighter. briefly) and medium multi-role aircraft (the F/A-18 and F-16). The F/A18C/D is winding down production and F-15 production is ending. MiG-29 Su-27 An Emerging Balance Between the U. We are not aware of campaigns where the F/A-18E/F is under serious consideration and the F-22 could be purchased by only a small number of countries acceptable to the U. New design likely to buy second-hand aircraft Su-27. Finally. Mirage 2000 and the Eurofighter. Gripen is a lightweight multi-role fighter in service with Sweden and ordered by South Africa while Eurofighter is being procured by the U. In the 1980s and early-mid 1990s. Gripen. In the 1980s and 1990s. Germany.S. Gripen. the U. Gripen. Spain and Greece. Rafale and Eurofighter. but the BVRAAM/Meteor missile program should result in the aircraft being equipped with a medium range air-to-air missile that is more capable than AMRAAM. although Dassault continues to market the aircraft. and who could afford the aircraft. Gripen Mirage. Rafale has been offered. most campaigns are apt to see the F-16 pitched against the Gripen. Table 5: Potential Fighter Buys Country Austria Brazil Chile China Czech Republic Norway Poland Saudi Arabia South Korea Syria Vietnam Source: MLPF&S Requirement 30 72-149 20 500 20-30 20 60 or more 75 120 50 50 Decision 2000 2003-5 2000 on-going 2000-01 2000-01 2001-02 2001 2002 2000 on-going Contenders F-16. Go-ahead on the Eurofighter program has made this a more viable offering and the win in Greece underscores this. the Gripen.S. France is procuring Rafale. but it did not score any export successes. J-10. Gripen. Europe offered the Mirage 2000 and Tornado. Europe is able to offer the Mirage 2000. Rafale Su-27.S. European aircraft are largely equipped with European electronics and avionics. Key points in several competitions was the ability of the U. FC-1 F-16.. Italy. F/A-18 F-16. Eurofighter does not have a radar that is as capable as the F16 Block 60 aircraft (it is mechanically steered. Eurofighter F-16.S. The 2000s represent a change in the competitive landscape: • • The F-16 is now the major aircraft type being offered by the U. 24 . The Saab/BAE SYSTEMS agreement to jointly market Gripen has expanded the market reach of this aircraft. Rafale is also not prominent in upcoming campaigns. the F-15 was available as well.S.S.S.
S. It remains to be seen how the Gripen and F16 do against one another.S. if could emerge as the logical replacement for a number of aircraft types in the 2010 period. Mirages. most European air forces were equipped with U. but BVRAAM/Meteor could make Eurofighter even more attractive.S. A key issue over the next ten years is whether Europe develops an advanced medium range air-to-air missile independently of the U. has played in the late 1980s and 1990s is that its aircraft offerings have included the AMRAAM (Advanced Medium Range Air-to-Air Missile). depending on how Joint Strike Fighter fares.S. and Mikoyen MiG21s in service around the world. Europe now appears to have no answer to the Joint Strike Fighter or F-22.S. This. we wonder if there is not room for a cheaper supersonic fighter to meet this long-term market need. Table 6: A Comparison of European and U. KTX-2? 2010 Europe Mako? Medium/multi-role F-4 A-6 Buccaneer Mirage 2000 F-16 Gripen F/A-18E/F Gripen JSF Eurofighter F/A-18E/F Rafale Mirage 2000 F-22 Eurofighter Rafale Gripen(?) Heavy/multi-role Source: MLPF&S F-14 F-111 F-15 Tornado F-15 Tornado There are several issues to watch: • The Gripen and F-16 are the only two advanced multi-role aircraft that address the low-end of the global fighter market.Combat Fighter Aircraft Outlook – 23 February 2000 The point here is that Europe is offering a wider range of fighters than it has in prior decades.S.S. One of the advantages that the U. 1990 Europe Hawk Harrier 2000 U. Light fighter/bombers F-5 A-7 1970 Europe Jaguar Mirage 5 1980 U. Combat Aircraft Offerings 1970 U.S. by the end of this decade. is beyond most investors’ horizons. If the Joint Strike Fighter is developed within the price range ($28-$35 million each) that is expected for the aircraft.K.S. then Europe could be in a position by the 2005-10 timeframe to offer Eurofighter with armaments that are independent of the U.S. This is shown in Table 6. If this aircraft lives up to its advertised promise as an affordable replacement for F-16s.K. 5s and F1s. There are still several hundred Northrop F-5s. 2000 Europe Hawk 2010 U. The U. then it could sweep competitions at the end of the decade when it is available and in production.S. Harriers and other aircraft types. Dassault Mirage IIIs.S. BVRAAM (Beyond Visual Range Air-to-Air Missile) program will be very important to watch because if the European Meteor missile is selected and if its development is not marred by cost or technical issues. Industry sources indicate that Europe lags the U. operated some F-4s. AMRAAM advantage offset by METEOR/BVRAAM • JSF could tilt market back to U. however. favor • The balance that now exists in the fighter market could again tilt to the U. Additionally. 25 . A-10 A-7 F-5/-20 F-16 F/A-18 A-6 1980 Europe Hawk Harrier Jaguar Mirage 2000 Viggin F-16 F/A-18 1990 U. in radar. In the 1960s and early 1970s.-built F-104s and the U.S.
with more emphasis on integrated product development. A J-7 is not even remotely comparable to more advanced designs. The aircraft was designed in the early 1970s and in 1976.Combat Fighter Aircraft Outlook – 23 February 2000 6.S.K/Germany/ Italy/Spain U. An improved version of the F/A-18. low rate expandable tooling concepts and design for manufacture and assembly.S. We believe that this will 26 . Harrier Tornado F-15E F-16C F/A-18C F/A-18E F-22 40 40 55-80 25-35 25 55 80-100 U. Appendix: Aircraft Data Major Aircraft Types Table 7 summarizes key data for multi-role fighters now in production or development. Finland and Switzerland. The program has been managed differently than others. called the E/F is now being procured and first flight occurred in December 1995. All $$ figures in U. Table 7: Fly Away Prices for Different Aircraft Types Country China Aircraft Type J-7 Mirage 2000 Rafale F/S-X Su-27/-30 MiG-29 Gripen Ching Kuo Eurofighter Manufacturer Chengdu Aircraft Industrial Corp. The E/F is about 25% bigger in volume than the C/D. Total cost includes the research and development costs of designing and providing tooling for the building of the aircraft.S. The Navy now has 195 F/A-18As and Bs and 330 F/A-18C/Ds and the Marine Corps flies 300 F/A-18s. Costs vary with the production run and the complexity of the aircraft. Navy's carrier aviation fleet.A Source: MLPF&S. millions n Boeing F/A-18 F/A-I18 C/D phases out of production – replaced by E/F Version The F/A-18 is a multi-role fighter/bomber that now comprises the backbone of the U. Australia. Center Brit. We have used estimates of fly-away costs--not total cost of each aircraft type. Kuwait and Malaysia. the Navy chose this Northrop-designed. currently plans to buy at least 548 F/A-18E/Fs.S. Navy carrier aviation (notably as a replacement for 1960s-vintage A-6 strike aircraft) and it incorporates several improvements over the C/D. Aerospace/Daimler/ Alenia/CASA British Aerospace “ “ Boeing Lockheed Martin Boeing Boeing Lockheed Martin Unit Price $2-$3 35 55 60 30-45 25 30 30 70 Costs and capabilities vary widely France Japan Russia Sweden Taiwan U.S. International customers for the aircraft include Spain. It is stealthier and has a greater payload and longer range. Canada. McDonnell Douglas built aircraft to replace A-4s and A-7s then in service. Dassault " " Mitsubishi Sukhoi Mikoyan Saab/British Aerospace Aero Industry Dev. The U.K. This aircraft will be used to modernize U. These countries all operate the aircraft in land-based modes.
n Boeing F-15 End of the line in 2000 The U.S. The aircraft is still production for the U. the F-22 can identify a threat aircraft through radar or an electro-optic sensor and then can prioritize threats and the distance at which they could launch air-to-air missiles. The aircraft is stealthy and its modern avionics offers a pilot unprecedented situational awareness. Air Force selected the F-16 in 1975 as a lightweight alternative to the F-15. We believe a smaller buy is probable. n Lockheed Martin F-16 Exports drive prospects Lockheed acquired the General Dynamics Fort Worth division in 1993 and thereby added the F-16 program and one third of the F-22 (it already had one third) to its portfolio. This selection resulted in the "E" version of the aircraft and the "E" version can carry a payload of up to 12 tons of bombs of bombs over a distance of 750 miles. The production line remains open today because of orders from Israel and Saudi Arabia. Air Force from orders placed in FY98. The backlog of undelivered F-16s stands at approximately 150 and international customers who are.S. In 1984. Egypt and Israel. and remains air superiority. The U.S. The principal mission of the F-15 was. The Japanese FS-X is a modified version of the F16 and is not included in the backlog. South Korea. F-16s are licensed produced in Turkey and in South Korea. then this number.S. or fewer. Lockheed Martin should benefit from technology transferred from this project and will produce certain major 27 . For example. n Lockheed Martin/Boeing F-22 F-22 enters production The F-22 remains the highest priority program in the Air Force and is intended to replace the F-15 in air superiority missions. The aircraft has been in production since the early 1970s and there are 440 F-15s in service with the U. Turkey. Air Force is to buy 442 F-22s. Lockheed Martin has 2/3 of the share of the program and Boeing the remaining 1/3. Air Force selected McDonnell Douglas in 1969 to build a replacement aircraft for the F-4 Phantom and F-106 interceptors then in service. However. First production delivery is scheduled for 2001 and the program is split between Lockheed Martin and Boeing.Combat Fighter Aircraft Outlook – 23 February 2000 depend on how the Joint Strike Fighter program progresses. or who should receive F-16s over the next five years include Taiwan. the Air Force selected a modified version of the F-15 over a modified version of the F-16 to fulfill a requirement for a long-range "strike" aircraft that could be used to attack ground targets. this aircraft received a major international boost when it was chosen by Belgium. The aircraft engine can "super cruise" which means it can fly at supersonic speed without resorting to a fuel-gulping afterburner. The F-22 will be a radical improvement over existing U.S. If. fighter aircraft. JSF slips. Norway. Air Force has been completed. The Air Force currently plans to buy 339 F-22s. and Turkey. New operators could include Egypt. In 1976. There are 204 F-15Es in service.S. A follow-on buy is possible from Saudi Arabia. then more F/A-18E/Fs could be bought that 548." There are more F-16s in use than any other western built aircraft in the world. as we expect. The current goal of the U. Production for the U. The F-16 has evolved from a lightweight air superiority fighter to a multi-role fighter bomber. Saudi Arabia ordered 72 of a modified version of the F-15 called the "S" version in 1992 and Israel has ordered 25 of the so-called "I" version.S. If JSF is a success. Deliveries from these two orders should be completed by 2000. could be bought. Air Force in the air superiority role. There are several potential international customers for the F-15 and it is possible that this aircraft resumes in production. Netherlands and Denmark in the socalled "deal of the century.
an improved cockpit layout and other enhancements to the airplane's avionics. n Eurofighter/Typhoon Pan-European program This air superiority fighter has been developed by a consortium of European enterprises and the program is managed by Eurofighter Jagdflugzeng in Munich. n Saab/BAE SYSTEMS Gripen Sweden and South Africa have ordered The Gripen is a lightweight multi-role fighter that is being developed for modernization of the Swedish Air Force. Germany around 180. weapons and missiles that can be loaded onto the aircraft. Eurofighter was conceived in the early 1980s to counter next generation Russian fighters and was to replace F-4 Phantoms. First flight occurred in 1986. The French Air Force is now taking delivery of the Mirage 2000s under a buy that should be completed by 2000. than many other aircraft discussed in this report (which weigh between 9 to 20 tons) and in some ways. The aircraft is lighter. DASA (center fuselage and tail). Because Sweden relies on conscription for its armed forces. at approximately 7. Germany a 30% share.Combat Fighter Aircraft Outlook – 23 February 2000 components.3 tons empty. Britain will claim a 37. Peru and Abu Dhabi. subsequent modifications to the aircraft have resulted in multi-role and specialized strike versions of the aircraft.5% share of the work. The MLU upgrades F-16A/B (so-called Block 10/15 aircraft) with a new mission computer. In 1992. part of the wing). the aircraft was designed with ease of maintenance in mind. Saab Scania is the principal contractor on the program. part of the wing) and CASA. depending on the mission. (half of the rear fuselage and part of the wing). or MLU. The JAS Industry Group includes Saab and other major partners are Volvo Flygmotor. Its multi-role capabilities come from pods. Italy will have a 19. The program's structure is largely dictated by work share requirements that. One other aspect of the F-16 that is important is the Mid-Life Update. Major contractors involved on the program include British Aerospace (front fuselage. notably India. n EADS-Dassault Rafale The Rafale is a new design that was first unveiled in the early-1980s and incorporates advanced materials. The Gripen was designed in the 1980s and prototypes have been flying since 1988. Ericsson and FFV. Taiwan ordered 60 of the Mirage 2000-5 version and deliveries were completed in 1998. Greece. as well as some ground attack aircraft in service with NATO air forces. in turn are dictated by the potential buy and costs borne by different countries participating on the program. In June 1995. n EADS-Dassault Mirage 2000 Production could extend to late 2000s The Mirage 2000 is an improved version of the earlier generation of Mirage aircraft. the rest. The French Air Force decided to buy the Mirage 2000 in 1975 as an interceptor/air superiority fighter. The aircraft will enter production in 1996 and Sweden has planned buy 140 of the aircraft. flight controls and avionics. Britain intends to buy 230 aircraft. Norway (56) are the major participants in this program and other operators of the A/B versions could also join. Denmark (61). The aircraft is a multi-role one and in 1989. The Netherlands (136 aircraft).5% share and Spain. Mirage 2000 has been exported to several countries. Initially. Tornado ADVs. Like other air superiority fighters. Belgium (48). F-104 Starfighters. is comparable to the F-16. the French government ordered the aircraft. an improved version of the APG-66 radar. Spain will be 87 and Italy 165. Alenia (rear fuselage. British Aerospace concluded an agreement with JAS to market the Gripen internationally and access 45% of the production on export sales. it will replace older Mirage and Jaguar strike aircraft in the French Air Force and will be the basis for the French Navy's carrier-based 28 .
Table 8 shows estimates of how much recent programs have cost. The key features of the aircraft include an innovative short-range airto-air missile system (the "sight" is mounted in the pilot's helmet and the short-range missiles carried by the aircraft is among the most agile in the world). Production of the aircraft for Russian air forces was completed in 1994 and it has been exported to a number of countries. India. Vietnam has ordered the aircraft and several are in operation. It too is as capable as most of the Western aircraft now in production and one of its advantages is the ability to carry up to six beyond-visual-range-type missiles. Hungary. the aircraft has been offered in a competition the UAE is holding for advanced fighter procurement. First delivery of the aircraft is scheduled for 1998 and the jet should remain in production through the next decade. the Su-30MK. which is a long-range version of the Su-27 equipped with a more powerful radar and able to assign targets to other aircraft. Poland. replacing 1960s-vintage Crusaders and Super Entendards France now has a total requirement for 86 for its Navy (assuming two carriers are built) and 234 for its Air Force. however. Based on Military Balance data. The Rafale has not yet received any export commitments. The Su-27's Western equivalent is the F-15. n MIG-MAPO MiG-29 Not clear if new production is occurring The MiG-29 was developed in the early 1970s and it became operational with Soviet forces in 1985. The aircraft was conceived as an air superiority fighter and its maneuverability and flight characteristics are as good as anything the West now has in production. Development Costs of Major Aircraft Programs There is no such thing as a cheap aircraft development program. Its range and size are advantages over this competitor and have enabled Sukhoi to make significant modifications to the aircraft. it should come as no surprise that fighter programs are often multiples of this level. n Sukhoi Su-27/-30 Mainstay Russian export The Su-27 is evolving into a family of multi-role combat aircraft Although the aircraft was conceived in the late 1960s. Criticisms of the aircraft include its short range and reliability of its avionics and engines. When development programs for relatively simple 70-90 passenger civil airliners are estimated to be approximately $1 billion. There are several different versions of the Su-27 that are now being offered. Sukhoi is developing an improved version of the Su-27 that is referred to as the Su-35. We continue to hear and read conflicting statements about whether or not this aircraft is still in production. but then this is true for most aircraft development programs these days. The Su-27/-30 exports are picking up. which is a long-range strike version. China operates approximately 50 Su-27s and has been negotiating for the license production of the aircraft. Not all have gone into production. which is a two-seat multi-role fighter and the Su-34. East Germany. the Su-30.Combat Fighter Aircraft Outlook – 23 February 2000 France is only buyer so far air fleet. including Iraq. India has ordered 40 Su-30MKs and deliveries began in 1997. 29 . The aircraft is different from the MiG-29 because it was conceived as a long-range interceptor. Yugoslavia and Syria. the first prototypes did not fly until the late 1970s and the aircraft has been in operation with the Russian Air Force since 1984. we estimate that there are over 1.000 MiG-29s in service around the world. These include the Su-27 all weather fighter/bomber. Iran North Korea.
Combat Fighter Aircraft Outlook – 23 February 2000 Table 8: Development Costs For Several Major Aircraft Programs Country U.S. Aircraft A-12 F-20 Tigershark F/A-18E/F F-22 Joint Strike Fighter LCA Lavi Ching Kuo Eurofighter Company or Enterprise McDonn./Germany Italy/Spain Japan South Korea Source: MLPF&S FSX KTX-2 +$3 billion $2 billion In production development Who Does What Table 9 shows major suppliers of different components of military aircraft.5 billion $10 billion Status canceled cancelled in Nov. Doug.K.5 billion $1. Boeing Hindustan Aeronautics IAI AIDC British Aerospace.2 billion $6 billion $10-$12 billion $26 billion +$1. 1986 in production development development development cancelled production late-stage development India Israel Taiwan U. Has Multiple Sources United States Airframes Boeing Lockheed Martin Northrop Grumman General Electric Pratt & Whitney Garrett Raytheon Northrop Grumman Lockheed Martin Northrop Grumman Lockheed Martin Litton Raytheon ITT Avionics. DaimlerChrysler CASA. other Litton Honeywell Rockwell Collins BFGoodrich Lockheed Martin Thomson CSF BAE SYSTEMS Smith Industries Finmeccanica Daimler Chrysler France U. U.S. Table 9: National Champions Exist In Europe.K. Italy Finmeccanica Germany Daimler Chrysler Russia Mikoyan Sukhoi Sweden SAAB Dassault/Aerospatiale BAE SYSTEMS Engines SNECMA Rolls Royce Fiat MTU Saturn Klimov Radar Thomson CSF BAE SYSTEMS Finmeccanica Daimler Chrysler Ericsson Electronic selfprotect Dassault Electronique BAE SYSTEMS Finmeccanica Daimler Chrysler Ericsson Source: MLPF&S 30 . Alenia Mitsubishi/Lockheed Martin Samsung Aerospace/Lockheed Martin Development cost +$5 billion $1.9 billion +$1./General Dynamics Northrop Boeing Lockheed Martin/Boeing Lockheed Martin v.
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