Months in the making, it looks like South Korea's $7.4 billion F-X III fighter jet competition has reached its conclusion -- and it will end not with a bang, but a shrug.
Two months ago, we told you about the how the last round of bidding shook out. After dropping heavy hints that only one plane, Boeing's F-15SE, had a price tag low enough to win a contract, the Korean Defense Ministry did an abrupt volte face at the last minute. South Korea announced that none of the planes tendered for consideration met all of its requirements. Lockheed Martin's F-35 Lightning II cost too much to win, true. But Eurofighter's Typhoon -- and Boeing's F-15SE as well -- were insufficiently stealthy.
Boeing's F-15SE looked like a cinch to win -- but then it lost. Source: Boeing Korea.
Result: South Korea declared the competition a bust, and promised to revisit the matter at a later date.
Second verse, not like the first
At the time, I pointed out that if South Korea was going to insist on staying within its budget, but also insist that whatever plane it bought be fully stealthy, fully fifth generation, there was really only one option open to it: South Korea would have to buy fewer planes than the five dozen it wanted.
Turns out, South Korea just came to the same conclusion.
Rather than hold a new competition for the F-X III contract, the Korean Defense Ministry confirmed Friday that it's just going to go ahead and buy the plane it wants, but only buy as many units as it can afford. South Korea will place an initial order for 40 stealth fighters (the ministry didn't come out and say these would be Lockheed Martin F-35s. But the F-35 is the only full stealth fighter in the running, and the only one whose per-plane price tag appears to match up with a 40-plane order). The ministry will then decide whether to fill out its desired 60-plane fighter fleet with 20 more units of the same plane, or supplement with planes from a different supplier.
If you must have a stealth fighter, there's really only one option -- Lockheed's F-35. Source: Wikimedia Commons.
What it means to investors
So it now looks like Lockheed has won the competition -- and the $7.4 billion that South Korea wants to spend on fighter jets next year. This is great news for Lockheed, which currently derives about 15% of its revenue stream from F-35 sales, and hopes to sell upwards of 50 fighters annually over the next few years. Deliveries to South Korea, assuming a contract now materializes, would begin in 2018.
Combined with optimistic noises coming out of Canada, Italy, Turkey, and Singapore about potential additional purchases of the plane, this all suggests that Lockheed's F-35 is gaining momentum in the marketplace. We could be in the early stages of a virtuous cycle in which orders permit mass manufacturing, resulting in lower prices per plane ... making the F-35 even more attractive to other buyers ... resulting in yet more orders.
You get the picture. Long story short, a win in South Korea will be good news for Lockheed in the near term. It could give rise to even more good news in the years to come.
Invest for the long term
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The article Lockheed Wins a South Korean F-35 Contract ... Maybe originally appeared on Fool.com.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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