Wednesday, April 02, 2014

Is the U.S. Ready for a Cut-Rate Jet Fighter? Textron Bets It Can Sell a Military Plane Using Off-the-Shelf Parts

The Wall Street Journal
By Doug Cameron

Updated April 1, 2014 7:27 p.m. ET

In an age of budget-busting weapons programs and tighter defense purse strings, Textron Inc. is betting it can sell a cut-rate military jet assembled in part from off-the-shelf components.

Textron, the world's largest maker of business aircraft, developed the new Scorpion jet with its partner AirLand Enterprises LLC in less than two years—a turbocharged time frame for a military plane. It borrowed technology developed for its high-end Cessna Citation corporate jets, and it added components like ejector seats from suppliers' catalogues rather than custom designing them. Textron used its own funds—analysts estimate it spent hundreds of millions of dollars—without a contract, which is rare in an industry where companies generally secure government backing and clear design specifications before starting projects.

Some prospective suppliers had so little faith in the project that they declined to take part. But Textron Chief Executive Scott Donnelly says he's confident a global market exists for small, cheap-to-run jets able to carry out intelligence, security and reconnaissance work for the military as well as functions like patrolling borders and tracking drug smugglers. The jets can also carry weapons under their wings.

"There was a need out there not being satisfied," he says.

Textron estimates the size of the global market at more than 2,000 planes and says the company could start to deliver them in 2015 if it wins an order this year. The Scorpion is priced below $20 million, and aims to have lower operating costs than those of pricier jets flying similar missions. That sandwiches it between slower turboprops such as Embraer SA's $11 million Super Tucano—a big seller to nations in Africa and Latin America—or advanced supersonic combat fighter jets like Saab SA 's $43 million Gripen, and offerings from Lockheed Martin Corp., Boeing Co.  and others costing $50 million or more.

Experts on military aircraft are divided on the Scorpion's prospects. The 2,000-aircraft estimate "is ambitious but reasonable," says Kristin White, a senior associate at Avascent, a defense-industry consulting firm. "The competition is going to be tough, but [air forces] will have to take a look" because of the price and capabilities.

Others see limited demand for such a plane and say the market is already well served. "I just don't get it," says Richard Aboulafia, a vice president at Teal Group, an aerospace consultancy. He reckons demand for the Scorpion's niche is fewer than 20 planes a year.

Textron says it's developing a price proposal for a potential governmental customer. It declined to identify the country, but people familiar with the discussions say it is in the Middle East. "The militaries of several U.S. partner nations have expressed interest and have been briefed, and proposals are being submitted," Textron says.

Providence, R.I.-based Textron, which had $12.1 billion in revenue last year, is one of the more diversified defense contractors. In addition to business jets, helicopters and military hardware such as armored vehicles and drones, it makes golf carts, car parts and what it calls the "world's fastest lawn mower."

The Scorpion's roots go back a decade to when entrepreneurs started developing so-called very light jets carying four or five passenger that used composite materials, lean manufacturing techniques and off-the-shelf parts. The jets were supposed to cost less than $5 million each, opening a market for private ownership beyond the elite.

That vision fizzled because of development problems and scarce funding. But a group of former military officers and aerospace engineers embraced a similar notion. They formed AirLand Enterprises and started pitching the idea of a low-cost jet to defense companies.

Whit Peters, a former secretary of the Air Force who led the AirLand effort and now supports the Scorpion sales push, says many companies balked. But in 2011 he pitched the idea to Mr. Donnelly and found a fit. Textron's Cessna unit hadn't built a military jet for three decades, but it was developing composite technology and manufacturing for its business jets.

The companies formed a joint venture, Textron AirLand, to pitch the planned plane to countries that couldn't afford higher-end models. They also targeted the U.S. National Guard.

More than half of the Scorpion prototype was built using parts developed for the Citation jet. Another 20% were acquired off the shelf.

Bill Anderson, president of Textron AirLand, says two large defense contractors declined to participate in the project because they doubted the size of the market or were wary of using the lightweight composite materials increasingly used on commercial planes to build a military jet.

Mr. Donnelly told potential partners to view Scorpion as a commercial project with military applications, and he urged them to be more flexible. That approach mirrors a push by Frank Kendall, the Pentagon's acquisition chief, for companies to be more agile and develop systems in the style of Lockheed's legendary SkunkWorks program. Under that program, small teams designed ultra-fast jets and rockets away from the traditional military acquisition process.

Taking decades to move from drawing board to operation "just won't cut it" for some military platforms, Mr. Donnelly said.

Some suppliers agreed to back Textron's approach for the Scorpion. Martin-Baker Aircraft Co. supplied ejector seats, donating them as part of its investment in the Scorpion. "I bought off on their vision," says Andrew Martin, vice president, business development.

The work was carried out in an unused building on Cessna's Wichita, Kan., campus known as the Glasshouse with a team that grew from nine to almost 200. Textron managed to keep the work secret for 18 months before its unveiling last September.

With the tight deadline and budget ceiling, executives approved redesigns in mere days or weeks. Wind-tunnel testing happened after the tools were already made to manufacture the jet. "We broke all the rules," Mr. Anderson says.

The ejector seats proved to be too big for the cockpit, and tailoring them to fit would have cost more than $100 million and delayed the project by 12 to 15 months. "[So] we modified the cockpit," says Mr. Anderson, an approach that defied convention in military projects, where designs are fixed to meet strict specifications.

Ultimately, the Scorpion's success—and whether more companies go it alone developing military systems without a contract--will depend on the jet's sales.

"That will embolden more companies," says Mr. Donnelly. "Or we'll have a bunch who will say: 'Told you so.'"