The future of Boeing’s defense business has been threatened by Brazil’s decision to purchase 36 new Gripen fighter jets for the Brazilian air force from Sweden-based Saab instead of the U.S.-based company. Saab’s Gripen is considered to be the state-of-the-art, multi-role fighter jet.
Brazil’s choice of fighter jets was based on a combination of low cost and the plane’s extensive range of air-to-air and air-to-surface mission. The Gripen is also used by Sweden, South Africa, the Czech Republic, Thailand, and Hungary.
Another possible factor in Brazil’s choice may have been the breakdown in relations between the U.S. and Brazil. The international tension was the result of the leak of National Security Agency documents by Edward Snowden that revealed that the U.S. was spying on Brazilian leaders.
Because Brazil has been Boeing’s best prospect for future sales of its F/A-18 Super Hornet fighter jets, the aviation giant must make some tough decisions about how its defense division will survive in the next decade.
Adding to its woes, Boeing also lost a 60-plane contract worth US$ 4.5 billion with South Korea to Lockheed Martin. That’s because South Korea chose to purchase the F-35, the next-generation fighter.
It’s clear to observers that if Boeing doesn’t get new orders soon, Boeing may be forced to exit the fighter-jet business, at least until it completes development of its next-generation fighter – the F-35C – in 2018 or 2019.
Losing sales is a major blow, but losing out on the lucrative after-sale market will be devastating. More than 80% of the revenue earned from a fighter jet sale comes from the sale of parts, upgrades, and support services to keep the plane in the air for the next 30 years.
Rebounding from the loss of two significant contracts, Boeing is looking to Europe and the Middle East for new customers for its Super Hornet. That’s according to Boeing spokesperson Conrad Chun. The Gulf is also an option. However, the U.S. government currently forbids military sales in that region. Sales may resume in 2020, but by that time, the newer F-35 may be the jet of choice.
To help secure the future of its fighter-jet division, the company is also lobbying the U.S. government to add funding to the military budget to purchase new F/A-18 planes. It’s a plan that has worked in the past.
As for Brazil, government officials are satisfied that the air force will be well equipped far into the future. As an added benefit, Brazil has insisted on having the planes manufactured in Brazil, thus giving a boost to the economy and the domestic defense industry.
