You are watching: Cost of f 16 fighter jet
Lockheed Martin"s (NYSE:LMT) F-35 stealth fighter gets all the headlines, but about the world, Lockheed"s F-16 Falcon continues to be the world"s most renowned fighter jet. Thanks to a brand-new arms deal struck through Taiwan, the F-16 can reign supreme for years to come.
As evidenced by an update on the Pentagon"s everyday digest the contract awards, critical week, the Air force awarded Lockheed martin a $62 billion contract to create an unspecified variety of F-16 fighter jets for acquisition by international allies. But who will certainly be buying these airplanes, and is this transaction as rewarding for Lockheed Martin as it sounds?
Lockheed Martin"s most renowned fighter jet is gaining even more popular with foreign arms buyers. Image source: Getty Images.
Look who"s buying the F-16 now
Seriously. Who is buying all these fighter jets?
Curiously, the DoD notice of the sale doesn"t clues the buyer(s). However according come a story by Agence France-Presse, at the very least 66 that the battle aircraft on stimulate (out of one initial production many 90) will be going to Taiwan in an $8 billion arms deal very first revealed last year.
The location of the other 24 jets continues to be a mystery. (Some sources surmise it will certainly be Morocco). And when you consider the vast size of this transaction -- almost eight times the dollar value of the sale negotiated critical year -- and its long duration (the contract follow me 10 years, although the early batch the 90 plane is due for completion by the end of 2026), it"s feasible that Taiwan, too, will be buying a lot an ext than just the 66 fighters it originally ordered.
The world"s most renowned fighter jet
Lockheed martin is the world"s biggest publicly-traded defense company. It only makes feeling that it need to make the world"s most famous fighter jet. And the latest concern of FlightGlobal"s human being Air forces report confirms that 2,280 Lockheed martin F-16 Falcons are in use by air forces around the globe -- more than double as plenty of as the world"s next-most-popular fighter, the Sukhoi 27 "Flanker".
Presumably, one of the factors the F-16 continues to be so well-known is that cost. Through a roughly $30 million price tag, an F-16 selling for much less than 80% the the sticker price of Sukhoi"s Flanker. Lockheed"s savvy relocate to start producing the F-16 in India, moreover, guarantees to aid the F-16 undercut the compete on price for years.
But friend don"t also need to job cost-cutting services to see exactly how this transaction will advantage Lockheed young name stock and also the company"s bottom line.
What it method for Lockheed Martin
So what does this sale average for Lockheed Martin, in dollars and cents? Here"s exactly how I look in ~ it:
Lockheed Martin"s Aeronautics division, which builds both the F-35 and also the F-16, has averaged operating profit spare in the 10.5% to 11% range over the last five years, according to data indigenous S&P global Market Intelligence. These margins, however, have actually been depressed by the huge number of lower-margin F-35s that Lockheed has actually been transferring of late, and the relatively fewer numbers of F-16s, wherein the production design is an ext mature -- and much more profitable.
From 2010 come 2015, once Lockheed to be building an ext F-16s and fewer F-35s (in fact, F-35 deliveries didn"t start until 2011), the segment"s operating margin ran together high as 11.4% -- and margins sometimes exceeded 13% in the five years before that!
So assume that Lockheed Martin can earn at the very least an 11.4% margin on every these brand-new F-16s it will be structure -- a plane model because that which Lockheed do zero deliveries in 2019, zero deliveries in 2018, and only eight deliveries in 2017. An 11.4% margin ~ above $62 exchange rate of sales translates to nearly $7.1 exchange rate in profit that Lockheed will certainly earn over the following 10 years from a weapons mechanism that to be all however extinct. That"s an ext than $700 million (and end $2.50 per share) in incremental yearly pre-tax profit, on average, for the period.
What comes after this contract operation out? If ns were to venture a guess, the reality that someone (i.e. Taiwan) has resumed buying F-16s in mass is likely to reinforce the airplane"s popularity, even as the massive economic situations of scale created by the mass buy enhance Lockheed"s earnings on each aircraft sold.
Combined v maintenance and also upgrades revenue native servicing all the brand-new planes -- and also of course, the company"s growing F-35 company -- I view this month"s F-16 eight sale as a far-ranging tailwind that will lift Lockheed young name shares because that years come come.
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This article represents the opinion that the writer, who might disagree v the “official” recommendation place of a Motley stupid premium advisory service. We’re motley! Questioning an investing thesis -- also one of our very own -- helps united state all think critically around investing and make decision that aid us become smarter, happier, and richer.
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