Downside of Dominance?
Popularity of Lockheed Martin's F-16 Makes Its F-35 Stealth Jet a Tough Sell

By Michael S. Rosenwald
Washington Post Staff Writer
Monday, December 17, 2007

FORT WORTH -- Here in Hangar 8, three shifts of Lockheed Martin technicians assemble F-16s, one of the most powerful and widely used fighter jets in history. They work tediously by hand -- bolt by bolt, wire by wire -- turning the plane's belly into a colorful work of industrial art later covered by 18,000 pounds of aluminum. The saying around here: Kick the tire, light the fire and then watch the thing zoom away.

F-16s used to be built next door in a mile-long factory that employees travel through on Schwinn bicycles. Now Lockheed is using that space to develop the F-35 stealth fighter jet, including a version that can land vertically. That Lockheed is juggling two of the world's most feared fighters illustrates its dominance in the industry and the importance of fighters for Lockheed's business. The F-16 has consistently been one of the Bethesda firm's top three revenue-generating products in the past decade.

"It has just had incredible staying power," said Bruce Tanner, Lockheed's chief financial officer.

But the circumstances in Fort Worth show the tricky path companies face when producing expensive products for governments that will replace the expensive products that governments already know and can still use.

"Lockheed's most potent competitor in the fighter business is Lockheed," said Loren Thompson, a well-connected military analyst with the Virginia-based Lexington Institute. "Its older planes are competing with its newer planes for market share. This is the downside of their tremendous success."

Lockheed has sent F-16 production back to Hangar 8, where the plane was first built in the 1970s as a daytime dogfighter, with pilots firing heat-seeking missiles. There were no bombs on board. Through some engineering ingenuity, some well-timed upgrades and some political help, the F-16 became the dominant all-purpose fighter for the Air Force and its allies around the world. Only about 1,000 were supposed to be built. Today, there are 4,500. An F-16 has never lost an air-to-air battle, but it is now primarily sold only overseas. One big potential customer is India.

Some skeptics have wondered why U.S. officials are investing nearly $300 billion to develop and buy the F-35 when the F-16, which costs about $40 million per jet, has proven so popular and easily upgradeable that 24 countries have bought them, many as repeat customers.

"There's a pretty good argument to keep building new F-16s forever," said Michael O'Hanlon, a senior fellow and military analyst at the Brookings Institution. "It's hard to say you can get a better bang for your buck."

It is an argument that could be made by a new administration in coming years, particularly if there is a recession. The Congressional Budget Office, in its "Budget Options" report issued this year, said the federal government could save $87 billion by canceling the F-35 project and simply buying more planes that are currently in use, including the F-16.

Lockheed officials said they are responding to the needs of the customer, in this case, the Pentagon, which has dubbed the F-35 the Joint Strike Fighter because it will be used by the Air Force, Navy and Marine Corps. Though the F-35 will feature many of the F-16's tools -- sophisticated radar, missile firing systems, electronic warfare and ground-to-air communication systems -- the newer jet's system will be significantly upgraded. In particular, it will feature a faster, less detectable radar found only on 80 F-16s belonging to the United Arab Emirates.

But most importantly, according to Defense and Lockheed officials, the newer jet will be able to do one thing that an F-16 can't: go undetected by enemy radar.

"The F-16 is a tremendously capable plane that just keeps proving its worth, even in combat operations today in Iraq and Afghanistan and with nations around the world," said Bruce Lemkin, deputy undersecretary of the Air Force for international affairs. "But the F-35 is going to be a jump into another dimension of performance and capability."

The F-35 would not be the only stealth fighter jet in the U.S. arsenal; the other is the F-22, also made by Lockheed.

The original developer of the F-16 was General Dynamics, which in 1993 sold its aeronautics business to Lockheed for $1.5 billion. At the time, some critics wondered why Lockheed would want the F-16 program, in particular because it was seen as a mature fighter jet without much gas left in its tank. In fact, shortly before Lockheed bought the program, there had been a slowdown in F-16 orders, and General Dynamics considered shutting down some of the production and laying off thousands of workers. But President George H. W. Bush, who was facing election-year pressure in Texas in 1992, lifted a ban on the sale of F-16s to Taiwan. The country bought 150.

"That's what ultimately saved the program," said Richard Aboulafia, a military analyst with the Teal Group.

Hundreds of international sales have followed. Turkey has 240, with plans for 30 more. Israel has more than 200. The Netherlands has 213. South Korea has 180. Greece has 140 and an order for 30 more. Lockheed officials said they foresee opportunities to sell several hundred more F-16s to foreign governments. India is reviewing proposals for 126 fighter jets, but the situation is complicated politically both there and with its rival Pakistan, which has ordered 18 F-16s. Morocco could buy some as well.

The company's aeronautics unit -- its largest revenue generator, projected to top $12 billion this year -- gets about 22 percent of its sales through international orders. Analysts expect more than $1.8 billion in revenue for F-16s in 2007. Lockheed has a backlog of 116 F-16 orders on its books, pushing production into 2012, but after that, it's anyone's guess.

"It has stuck around a long time," said Joseph Nadol, an analyst with J.P. Morgan. "It's still important and will be important for the next few years."

Military analysts said that U.S. allies are attracted to the plane for two primary reasons: because air campaigns can more easily be conducted as coalitions if allies own similar fighter jets, but more importantly, because Lockheed has been so adept at installing the latest war fighting technology on the frame of what is otherwise an older plane. Such upgrades have helped the F-16 generate remarkable survivability statistics in combat: With more than 200,000 sorties flown, the plane has been shot down just six times.

"This suggests that the plane in the majority of the world's air forces is still a very, very good plane," said O'Hanlon, the Brookings analyst. "I think it's the best fighter pound for pound, dollar for dollar."

Bill McHenry is in charge of selling them for Lockheed. As he puts it, "This is not your father's F-16." Asked why, he ticks off a slew of technological upgrades. The F-16 has gone from having minimal radar ability in the 1970s to having some of the latest air-to-air and air-to-ground radars. Countries such as Greece, which doesn't have in-air fuel tankers, have requested that extra gas tanks be fitted on top of the planes. Lockheed obliged. The F-16 now has helmet mounted cueing, which displays targeting information on the visor of the pilot's helmet.

"We like the F-16 for its operational capability versus the money," said Spyros Georgopoulos, the air attache to Greece and a former F-16 pilot. "You get outstanding agility and the capability to successfully convert from air-to-air to air-to-ground missions."

A diplomatic source with knowledge of how a recent sale was conducted in Greece said U.S. officials do not put pressure on foreign governments to buy U.S. products to maintain good relations. Rather, embassy officials played up the cost of the plane in comparison with its capabilities. "There was no political linkage," said the source, who spoke on the condition of anonymity because he wasn't authorized to speak about the sale. "Rather it was, 'This is a good deal, and this is the place to go.' " U.S. Embassy staff in Greece helped officials there negotiate the contract through a government program allowing Greece to pay about the same amount for the planes as the United States would.

Despite the continuing sales, there is concern from the Air Force -- and even some military analysts who support continuing production of the F-16 -- that the plane doesn't have the stealth capabilities needed for battles of the future.

Lockheed has been able to lower the plane's visibility on radar by coating its body with certain materials, though for security reasons, Lockheed officials declined to be more specific. Critics contend that long-range precision missiles limit the need to fly within range of radar and that many enemy air defense systems aren't sophisticated enough to do harm to the F-16. Also, there are ways for pilots to fly without tripping off air defense systems. For instance, Greek Air Force pilots flying in formation sometimes have all the planes except one turn off their radar, Georgopoulos said.

Their opponents counter this way: There is no telling what the future holds. The rise of China, Iran and other potential foes means the United States must have a more dominant fighter than the F-16.

"You have to assume with globalization that technology is spreading rapidly around the world," said Jacques Gansler, former undersecretary of defense for acquisition. "The F-35 is really a future system for when everyone will have sophisticated radars."

Thompson, the Lexington Institute analyst, said of the F-16: "In the future, that plane won't be survivable in Serbia much less China."

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