Lockheed’s F-21 looks like a good hedge

Lockheed Martin has just unveiled the new jet the giant U.S. defense company is offering India in response to the Indian Air Force’s RFI (Request For Information) for 110 fighters, worth over 15B USD.

 

Dubbed F-21 (a designation used by the IAI Kfir in US service) and introduced by the slogans “Make in India” and “India’s Pathway to F-35”, the aircraft would be built locally in partnership with India’s Tata Advanced Systems.

 

“The F-21 is different, inside and out,” Vivek Lall, vice president of Strategy and Business Development for Lockheed Martin Aeronautics, said in a statement. However, the aircraft… appears to be an enhanced F-16 Block 70, a configuration upgrade of the F-16V.

That was from TheAviationist.

It’s interesting that foreign markets keep defense firms in check. They still need to cater to customers who demand capability at a reasonable cost, or they can take their business to France or Sweden or Russia. Lockheed has a great design and name in the F-16, it would have been a shame to have gone out of production forever. In fact, some claim that the only reason the F-16 was inventoried by the USAF was to win an international competition in 1974 when an outdated Northrop F-5 and a pricey McDonnell F-15 were not enticing options.

One issue is that Lockheed doesn’t intend to produce any more F-16s in the US. They’ll do India’s order in India. And that might be a good strategy for Lockheed, but it still means their Ft. Worth plant line is totally devoted to the F-35. US Air Force budget request includes funds to shutter the F-16 production line for good.

[Update: Scott from the comments says “Lockheed is moving the F-16 line to South Carolina in order to build for international customers–they have a backlog (Bahrain, Bulgaria, Slovakia) that goes into the mid-2020s. So they are not ending US production, as you state.” — Thanks Scott. Here’s an article on that.]

Pressures from the foreign market keep defense firms hedging their bets when the DOD is demanding homogeneity. It is well known that the DOD funnels more money to fewer programs. We should be happy when our allies take different approaches, even if we really did believe in our own approach.

If the DOD decided to take just 10% of the budget it devoted to the F-35 to fund a single-mission alternative (or alternatives), then we might have long ago shifted resources out of the F-35 and into a different program without heartache. Any investor who puts all their eggs in one basket — a basket that was known to be at high risk at that — is bound to lose their shirt. But the government is protected from that reality for the most part, as are its officials.

Now, if someone asked, “where are you going to find 10% more funds because the F-35 needed all those available funds?” then I might respond, “Actual F-35 funding was on average more than 10% higher than initial estimates, so the money was there all along!” Moreover, 10% of funding was never going to save the F-35 from all its issues. And we haven’t even gotten into operational test.

A good response back would be, “well, your hedging program would probably grow too!” Perhaps, but you should hope resources shift to the more promising, and lower cost growth, program. So the follower program couldn’t grow worse than the F-35 or it would have been cut. But another point is that the incentives are different when you know there’s a real competitor.

Again, I’m not so much against the F-35 as I am against the fact that the DOD fails to hedge its bets using overlapping programs with lower risk. It is having real options available to you that let’s you recognize the opportunity cost of your choices. Luckily, there are decision-makers outside of the DOD, allowing us to observe the value they derive from alternative choices.

An interesting thought experiment is if we needed to ramp up aircraft production quickly for a war. Potentially US decision-makers at that point would prefer proven technology at an affordable price. It would take too long to re-convert Lockheed’s Ft. Worth plant to be of any use, so they’d continue building F-35s even if they weren’t reliable for battle.

Luckily, the US has the option to look to Indian F-16 production. Not all its eggs were in one basket after all! This kind of cross-pollination through firms is important for keeping a diversity of views present in the US, and as India grows, the US will increasingly want to import technologies even in defense.