Important news for Saab-Boeing team in T-X program

Former fierce competitors Boeing (NYSE: BA) and Saab (OMX: SAAB B) have recently started partnering up on a number of projects. The anticipated lucrative USAF trainer bidding process is what pushed them to join forces. Overall the worldwide demand for lowering costs has led the industry to partner more and more on big military projects. Swedish aerospace and defence company is thinking of making big moves in the United States.

In the so called T-X program, the United States Air Force is expected to replace aging two-seat jet trainer T-38 Talon with an initial order of 350 planes that could be worth 90 billion SEK. Lifetime orders from the U.S. could approach 1000 jets and its allies would then be expected to make orders as well. The number of Talons built is 1146. It is unclear when a contract award would happen, but we should have some news by 2016 on when the proposals for the new jet are requested for.

The competitive landscape just had a big shift. Defense News reported that General Dynamics (NYSE: GD) chose to withdraw as prime contractor of the T-100, a re-branding of The Alenia Aermacchi M-346 Master, bid with Italian firm Alenia Aermacchi. Alenia, which is a subsidiary of Finmeccanica (BIT: FNC) had previously considered bidding as a prime contractor but it is considered rather unlikely that notoriously protectionist USA would choose another foreign venture to tackle such a mammoth deal alone, even if Alenia would do the manufacturing on U.S. soil.

Therefore Alenia is likely to try to land a new prime contractor/integrator. It sounds as if communication from the U.S. army on the requirement heard by Alenia and General Dynamics in the pre-bidding process required for more modifications. Overall there is now more talk with the industry beforehand on such deals so companies from bids that ed up losing could instead jump ship.

Other competitors are expected to be Talon maker Northrop, now Northrop Grumman (NYSE: NOC), Lockheed Martin (NYSE: LMT) and Korea Aerospace Industries KAI (KRX: 047810) consortium with their KAI T-50 Golden Eagle. Saab-Boeing and Northrop Grumman bids are clean-sheet design from scratch which would enable better adhering to changing requirements. Northrop Grumman was previously planning to submit BAE Systems Hawk.

Saab already has 200 people working on the project mostly with Boeing in St. Louis. As SvD Näringsliv points out, Saab already warned a year ago that costs from the project will be a drag on its results for now. A perceived increase in its chances to get the order therefore had a positive impact on the share price today. Saab and Boeing expect to be able to deliver an adaptable and affordable offer. This would likely mean a smaller plane that could undercut T-50 in costs.

KAI and by presumed extension Lockheed just got good news from South Korea, winning an order of over 7 billion Euros to develop a mid-level fighter for Republic of Korea air force. KAI beat out Korean Air Lines (KRX: 003490), which had European Airbus Military as a technical partner in a last-minute bid. South Korea is also buying PAC-3 missiles from the United States and launch-systems will be upgraded by Raytheon (NYSE: RTN).