Boeing's F/A-18F Super Hornet
Boeing
By Clay Dillow
May 12, 2015

In an average year, the global fighter jet industry does well to ink two or three blockbuster deals, the kind in which military groups decide to upgrade their fleet by ordering a couple of high-powered aircraft. By these standards, 2015 looks like it will be an above-average year after a surge in jet orders in March and April.

Ongoing crises across the Middle East and Europe as well as uncertainty over U.S. foreign policy toward Egypt, Iran, and several Middle Eastern states are fueling a global fighter jet shopping spree that has already seen tens of billions of dollars hit the negotiating table. While these geopolitical pressures have seen U.S. defense contractors strike several major foreign defense deals this year, when it comes to the recent spike in fighter jet purchases France has emerged the clear winner.

“When you buy a plane you buy a strategic relationship,” says Richard Aboulafia, vice president for analysis at defense and aerospace consultants at Teal Group, about the recent spate of fighter jet deals. “And right now the French are seen as a better relationship to have.”

The spree started on Feb. 13, when Egypt signed a deal with French aerospace firm Dassault for 24 of its Rafale multi-role fighter jets, making Egypt the first foreign buyer of the aircraft. India quickly followed that purchase with an order for 36 Rafales on April 10 (the terms of that deal are still pending). By the end of the month, Qatar had tacked on a $7-billion order for 24 Rafales. And, just last week, word leaked that Kuwait will upgrade its existing fleet of Boeing-made fleet with 28 new F/A-18 Super Hornets that includes an option for 12 more—a deal worth roughly $3 billion to Boeing.

Meanwhile, Dassault remains in talks with the United Arab Emirates over the sale of an undisclosed number of Rafales, and Malaysia is reportedly discussing a purchase of 16 jets. The surge in orders makes it a good time to be Dassault, particularly considering the company had previously not sold a single Rafale to a foreign military.

Several foreign Air Forces have been evaluating their air power requirements over the past several years, with plans to upgrade or replace aging fleets by the end of the decade or in the early 2020s. But given the tenor of global events, Air Forces from Finland to Qatar to Southeast Asia are moving up their timetables, choosing to spend their money now in order to ensure delivery of new air power assets sooner, rather than later.

Regional events driving the demand range from the civil wars in Syria and Libya to the rise of the Islamic State across the Middle East and aggressive gesturing by Russian and Chinese militaries. Other factors, like the potential sale of sophisticated S-300 anti-aircraft missiles to Iran by Russia create further impetus for modernizing air power. And, given that fighter jets can take several years to build and deliver, no air force wants to be stuck at the back of the queue awaiting new hardware when conflict comes knocking.

The sudden spike in interest in the Rafale has as much to do with global geopolitical uncertainty as with conflicts unfolding on the ground, Aboulafia notes. Several Persian Gulf countries that have long depended on U.S. companies for military hardware—including Saudi Arabia, Qatar, and the United Arab Emirates—are diverging over U.S. foreign policy in the region. In particular, American policies pertaining to the newly-minted regime in Egypt and pending nuclear deal with Iran have divided the region. Just this week Saudi Arabia’s King Salman declined an invitation from President Obama to talks taking place at Camp David—a move many analysts see as a snub to Obama’s Middle East policy.

Meanwhile the French have been very militarily active in the area, and in some ways are more aligned with the military thinking of those same Gulf states. These situations can make a long-term contract for French combat jets—as well as the service and upgrades they will require over the next two or three decades—more attractive to states. It becomes even more important if those countries worry the U.S. might turn away from them in the future. Likewise, such policy uncertainty makes it more difficult for U.S. defense contractors to ink those kind of long-term contracts abroad.

Amid this flurry of fighter jet activity, the Kuwait deal remains the silver lining for the U.S. defense and aerospace industries. Boeing desperately needed such a deal in order to extend the production line for its F/A-18 and E/A-18 aircraft. The St. Louis assembly line that produces the F/A-18 airframe was slated to close in 2017 if no new orders were placed. The plant needs to produce two jets per month for production to remain economically viable.

The U.S. Navy has asked for 12 more Super Hornets in the fiscal 2016 budget, though Congress has not yet approved funding for them. Regardless, the Kuwait deal should extend production into 2019, giving Boeing a shot at landing further orders from Belgium, Canada, or Denmark—all of which are mulling fighter purchases later in the decade. It also gives the U.S. Navy flexibility to buy a few more more Super Hornets or Growlers on a year-by-year basis without having to commit to a multi-year contract with Boeing.

SPONSORED FINANCIAL CONTENT

You May Like

EDIT POST