Is This War Profiteer a Sore Loser?
Jan 19th 2012 3:10PM
Updated Jan 19th 2012 3:12PM
Picture this: You're sitting in a foxhole in Afghanistan, pinned down by Taliban mortar fire. Fifteen minutes ago, you called for air support, but insurgent infantry is approaching. They're creeping up on your position, and there's not a thing you can do about it. Any minute now, you'll be overrun.
Suddenly -- bang! -- a pair of Embraer (NYS: ERJ) Super Tucano fighter aircraft roar overhead, strafing the mortars and suppressing their fire. The infantry retreat, and the day has been saved, courtesy of the U.S. Air Force. (Huzzahs all around.)
But what if the air support is late? What if it arrives months after you called for it? That's the dilemma facing our troops in Afghanistan today -- and corporate infighting bears the blame.
Earlier this month, Embraer won a Pentagon contract to build prop-driven fighter planes for the Air Force. At $1 billion in potential value, it's a big deal for Embraer, and its first major sale to the U.S. military. Problem is, $1 billion is also a big deal to the company that Embraer was competing with -- Goldman Sachs (NYS: GS) subsidiary Hawker Beechcraft. In cooperation with partners United Technologies (NYS: UTX) , L-3 Communications (NYS: LLL) , and Lockheed Martin (NYS: LMT) , Hawker sank more than $100 million into developing its own offering for the contract.
The Air Force nixed the Hawker team's bid, however, putting these companies' investment at risk. And when Hawker protested the award to the Government Accountability Office, the GAO also found no reason to overturn the award to Embraer. Now, charging that the Air Force decision will cost "U.S. jobs," Hawker is suing the Air Force and demanding it choose Hawker's AT-6 over Embraer's Super Tucano. (Never mind that Embraer is building the ST in Florida, and says it will create 1,200 jobs there.)
As a direct result of Hawker's suit, the Air Force has had to issue a stop-work order on the Super Tucano. What this means is that the plane, which was expected to arrive in-theater and begin supporting U.S. ground troops as early as next year, will now be delayed indefinitely. That air support you were waiting for may never arrive. But hey, at least Hawker Beechcraft, its subcontractors, and its owners at Goldman Sachs -- twice rejected by the Pentagon -- get one more bite at the apple. So it's all good, right?
At the time this article was published Fool contributor Rich Smith owns shares of Embraer, and as you may guess, is not pleased at Hawker stalling the contract. The Motley Fool owns shares of L-3 Communications Holdings and Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Goldman Sachs, Embraer, and L-3 Communications Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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