Joint Strike Fighter: An “Opportunity” to be Avoided

Issue Brief

If you want to understand why defense stocks often trade at a discount to other equities, take a look at the Joint Strike Fighter. The $220 billion program is supposed to replace Air Force F-16’s, Navy F/A-18’s and Marine Corps AV-8B’s with 2,852 stealthy fighter-bombers produced in three versions. Because the JSF program is so big, all the other tactical aircraft currently in production disappear from the Pentagon’s budget at the end of the decade to make room for it.

Previous efforts to buy the same plane for several services usually ended in failure. Too many tradeoffs of key features were required. Now it’s happening again: JSF won’t have the air-superiority capabilities of an F-22, the range or payload of a B-2, the versatility of an F/A-18 E/F, or the affordability of an F-16. So it’s not surprising the Washington Post reported on May 13 that industry and the military are beginning to get cold feet on the program. What’s surprising is that the quarter-trillion-dollar program got this far without closer scrutiny.

Imagine you’re one of America’s three surviving producers of combat aircraft, and you’re lucky enough to “win” this program. What does that mean? First of all, you get to spend hundreds of millions of dollars of your own money on developing it (the government never covers all the costs). Then the profitable programs you’re already working on — F-16, F/A-18, F-22 – – go away to make room in the budget for JSF. And then the Pentagon begins stretching out and reducing its production goals for JSF, destroying your profit projections (B-2 was cut 84%, F-22 56%, and F/A-18 E/F 45%).

You’d have to be pretty imaginative to come up with a program more dangerous to what’s left of the U.S. military-aircraft industry. Having hobbled all of the survivors by amputating their core programs, the government now wants them to bet the farm on its latest, craziest idea. They should listen to their shareholders and say “no”.