Yesterday, the Global Times, a Chinese Communist Party news outlet, published a piece in their opinion section "F35 Fighter Has Become Clumsy White Elephant". The article is essentially an interview with one Chen Hu, some sort of military affairs expert.
The F35 Lighting II, a Lockheed-Martin product, is really quite an impressive piece of military hardware and technology. However, the F35 is also horrendously over budget and behind schedule. Mr. Hu offers some opinions in the Global Times piece:
"GT: What will the impact be after the sudden hike in the price tag from $50 million to as much as $120 million?
Chen: After the increase, it will be difficult to buy the aircraft in the quantities expected, so the US Air Force is likely to start evaluating alternative projects soon. The British armed forces are also likely to purchase fewer F-35s than they originally planned.
The crisis in the design of the F-35, the most advanced fourth-generation fighter in the world, throws a shadow on the future of aircraft development and deployment in the US and elsewhere. The chief lesson this teaches us is that making new equipment affordable has become a major problem in the research and development (R&D) process of any major new piece of military hardware. All R&D institutions should be concerned about this."
NOTE: Mr. Chen refers to the F35 as a "fourth generation fighter" but Lockheed bills it as a fifth generation fighter. Of course, there are those who insist the F35 is a fourth generation fighter as articulated at the Air Power Australia website. I am really not to concerned with the pedantic debate of jet fighter taxonomy, just thought I would point it out.
Back to Mr. Hu:
"GT: What can we do to ensure the new equipment is affordable?
Chen: First, a prior feasibility study is necessary. This process should be a standard form of R&D for any large piece of military hardware. In other words, how the new equipment will be used and what criteria are suitable to evaluate them needs to be carefully considered to reach a balance of costs and effectiveness.
During the R&D process for the US fourth-generation fighters, this process was carried out intensely. But, the biggest problem for these new fighters is that the initial hypothetical battlefield environment into which they may be deployed has tremendously changed.
They were originally developed for the battlefield environment during the Cold War, where they would encounter strong opponents in air combat.
Due to such high-risk combat environment, the new generation of combat aircraft had to be excellent.
This has substantially increased the difficulty of R&D, led to soaring R&D costs, and finally threatened the progress of the whole project.
There have been many cases of military hardware failing because of problems in feasibility studies, such as the case of the F-104 second-generation fighter in the US.
At the time, there was a push for high speed and the ability to climb to high altitudes, but these were not needed in the real battlefield environment. Soon afterward, the F-104 was withdrawn from service and became a typical case of an advanced aircraft failing due to R&D problems.
Now the F-35 is suffering from the same problems, but this time the difficulty is not in technical performance, but in R&D costs.
Therefore, accurately understand the changing of battlefield environment and reflecting that in early studies of new equipment is a key issue for effective R&D."
Mr. Hu continues:
"GT: What does the US need to do now?
Chen: To ensure new equipment affordable, the emphasis needs to move to audits after the R&D process has started. Audits are also important throughout the process of pre-feasibility studies, R&D, and deployments.
Some large-scale military hardware projects, like the F-35, seem to be nothing more than fishing trips designed to test the waters for new equipment and make as much money as possible.
The original plan held up the F-35 as being less expensive, but that's fallen through. Since the research company wanted to pursue the maximum profit, it is impossible for them to set the price of new generation aircraft at the same level as old ones.
The original price for the F-35 is $50 million. After the F-22 was withdrawn, the price of the F-35 was inevitably pushed higher and higher."
It is always nice to know what the competition thinks.
As investor, I have been shying away from the big players in aerospace and defense segment such as LockMart, Boeing, etc. Big cost overruns, schedule nightmares and political scandals (such as the KC-X bid selection debacle) do not seem to be a good fit in today's constrained fiscal and defense procurement environment and will ultimately limit the upside for such firms. There are plenty of opportunities amongst the smaller players in the aerospace and defense sector and I might blog upon some of these for your profit and amusement at a later date.
Years ago, when the Joint Strike Fighter concept was starting to be acted upon, I thought it was not such a hot idea. At the time, I was of the opinion that given the high costs involved and the radical lead the United States possessed in military and industrial technology over its' competitors, the thing to do would have been to save the time and money and skip a generation moving right along to a sixth generation fighter...whatever that may be! However, that was not to pass.
DISCLOSURE: I have taken profits in Lockheed and Boeing in the past but have no intention of getting back in as of this time. I do hold long positions in the Raytheon Company and Honeywell International, Inc. which both provide components to the F35 Lightning II program.
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