Skip to comments.Will Lockheed's Rival Crash and Burn?
Posted on 07/07/2011 11:11:41 AM PDT by sukhoi-30mki
Will Lockheed's Rival Crash and Burn?
By Rich Smith
Investors know the saying: "Bulls make money, bears make money, but pigs get slaughtered." If you stumble onto a "good thing," don't get greedy -- take a fair profit. France's Dassault would be wise to heed that lesson.
Yesterday, DefenseNews.com reported that Dassault has run into trouble in negotiations to sell the United Arab Emirates a fleet of Rafale fighter jets. The UAE wanted to purchase several dozen of the jets to replace its 63 French Mirage fighters. But a deal that was supposed to cost somewhere between $2.5 billion and $6 billion is getting more expensive by the day. DN.com reports Dassault is now asking for as much as $10 billion.
I certainly understand Dassault's desire to maximize profits. The UAE has bought Dassault's fighters before, and it seems to like them. Why not charge as much as the market will bear? But from the buyer's perspective, "the UAE is finding the Rafale offer to be too costly compared to ... other technologies on the market."
Don't like pork? Try the chicken Unfortunately for Dassault, the UAE's not a captive customer. Last year, it considered buying Boeing (NYSE: BA ) F/A-18 Super Hornets instead. Lockheed Martin (NYSE: LMT ) , with a long history in the UAE, poses an even greater threat to Dassault's deal. Alongside partner Raytheon (NYSE: RTN ) , Lockheed recently sold multiple anti-aircraft and missile defense systems to the country.
More pertinently, Lockheed sold the Emirates a fleet of 80 F-16 fighter jets back in the 1990s. Indeed, Lockheed and the UAE cooperated to develop a new F-16 variant designated the "Block 60 Desert Falcon," which some consider "the most capable" F-16 version in use worldwide. Lockheed would certainly love to repeat that deal, which netted it $7.3 billion in sales. (I'm guessing that GE (NYSE: GE ) and United Technologies (NYSE: UTX ) , who provided the engines, wouldn't mind, either.) Lockheed's reportedly offering the UAE "a very attractive financial package" if it chooses the F-16 over Dassault's Rafale.
Next to that offer, Dassault's starting to look a bit oinkish.
Will Lockheed succeed in stealing the fighter jet contract from Dassault? Will Boeing butt in with an even better offer on the F-18? Add both stocks to your Fool Watchlist, and find out
UAE F-16 Block 60
And how will this bode for the Indian Air Force MMRCA competition between Rafale and Eurofighter Typhoon?
On top of Dassault’s failure to close a deal with Morocco last year, I think this is just more evidence that the MMRCA is Eurofighter’s to lose.
Hard to say since the UAE’s purchase was not exactly a competition like the Indian one. The F-16 makes perfect sense for them-already in service and more than adequate for Iran and their regional policing roles.
About India or Brazil, we don’t know if they want the kind of beefed up variant that the UAE was/is seeking. That being said, I agree with you on the Eurofighter for political reasons.
I might add that this may not be the end of the Rafale and could just be a negotiating tactic. The UAE has been courting more than one partner for a decade and with a new French military base, they could feel obliged to pay back Paris. Then there is the issue of sensitive technology like cruise missiles which they want and which Washington may not provide. The plan to develop an enhanced M-88 engine for the UAE is to enable the Rafale to carry up to 3 Scalp cruise missiles.
...in negotiations to sell the United Arab Emirates a fleet of Rafale fighter jets... to replace its 63 French Mirage fighters... was supposed to cost somewhere between $2.5 billion and $6 billion... Dassault is now asking for as much as $10 billion.
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