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Analysis: Why the next 18 months will be crucial for Gripen
Craig Caffrey Analyst - London
Saab's Gripen multirole fighter aircraft order book will dry up in 2012 unless new international contracts are secured. The Swedish company's failure to secure its largest-ever export deal in Norway has left it facing an uphill struggle in the international market
After a concerted but ultimately unsuccessful effort to clinch the largest export contract so far for the Gripen in Norway, Saab will be trying hard to secure one of several key contracts, which are set to be decided over the next 18 months.
On the heels of Norway's November 2008 announcement to procure 48 F-35 Joint Strike Fighter (JSF) aircraft at a cost of NOK18 billion (USD2.6 billion) instead of Saab's NOK24 billion proposal came further bad news for the company from the Hague.
Unsurprisingly, the Netherlands - a level-two partner in the JSF programme - opted for US aircraft in December 2008.
Denmark - a level-three partner in the JSF programme - is expected to follow suit as all three air forces switch from the F-16 to the F-35. Copenhagen's decision is expected in March this year.
Optimism and investors' concerns
Despite this setback, Saab, for its part, has been upbeat about its prospects in the international market. Following Norway's decision, it declared in December 2008 that it will continue to pursue new markets with the aim of selling up to 200 Gripen Next Generation (NG) aircraft - as offered to Norway - and is confident of success.
"We now move on and gather strength in markets where there is a real interest to evaluate Gripen. [It is] a very competitive alternative, operationally as well as financially," said Saab.
However, investors do not seem to share Saab's optimism. Credit Suisse noted in a 9 January paper to investors that "Saab underperformed the [aerospace and defence] sector significantly in the second half of 2008", partly reflecting "the loss of Norway as a potential customer for its Gripen".
The paper added: "An export sale for Gripen remains the most obvious upside catalyst, but we see few immediate decisions on key campaigns."
The next 18 months
Beyond the Danish, Dutch and Norwegian fighter programmes, Saab will concentrate on three key contests in Brazil, India and Switzerland, all of which will be decided over the next 18 months.
Failure in all three contests would attach a degree of uncertainty to the future of the Gripen programme, given that only the Czech Republic, Hungary, South Africa, Sweden and Thailand have ordered the aircraft to date.
At present, production of the Gripen will end in 2012 upon completion of the South African order, provided that no further orders are secured in the interim.
Furthermore, the enhanced Gripen NG variant that Saab is proposing for the majority of these upcoming competitions has yet to secure an order.
The programme, which aims to enhance a number of key capabilities on the aircraft such as the radar, electronic warfare systems and avionics while extending the aircraft's range, will still continue in the absence of an export customer but at a slower pace and as an upgrade to existing aircraft, rather than a new production standard.
Without the inclusion of another major partner in the NG programme, some of the proposed functionality may suffer delays, particularly given Sweden's current defence budget constraints. Stockholm announced in September 2008 that it would cut SEK2.78 billion (USD339.81 million) from its future equipment programme between 2009 and 2011, prompting Saab to comment on an anticipated "moderate impact".
Brazil, India and Switzerland - Gripen's prospects
In terms of prospects the Gripen seems well suited to the Swiss requirement for between 24 and 36 aircraft, which is expected to be announced later this year. However, the NG variant is not on offer because of Swiss time constraints on when the aircraft are to be delivered.
In Brazil, where the NG does compete, the contest looks set to be a close-run thing between the Saab aircraft and Dassault's Rafale, although ties between Brazil and Paris in the defence sector have become particularly close of late.
In India, which is by far the most important contest, where at least 126 aircraft worth more than USD9.5 billion are to be procured, the Gripen is considered a genuine contender. However, there is strong competition, particularly from Boeing and its F/A-18E/F Super Hornet, and if the Gripen NG fails to secure a customer in the interim, the uncertainty that this would cause may discourage the Indian Ministry of Defence from opting for the Gripen.
An additional six-aircraft order from Thailand is also expected to materialise in the short to medium term.
Outlook
The Gripen retains strong market potential largely based on its low through-life and procurement costs, planned enhancements and the extensive industrial participation agreements offered. Its appeal has been amply demonstrated by its presence in all the competitions mentioned above.
However, following the selection of the F-35 in the Netherlands and Norway and an expected third endorsement of the Lockheed Martin jet due soon in Denmark, the pressure to secure a contract is mounting, particularly given the number of contests set to be decided over the next 18 months. Saab will need to convert some of the Gripen NG's potential into firm orders if the aircraft is to retain its position in the fighter market beyond 2012.
© 2009 Jane's Information Group
Craig Caffrey Analyst - London
Saab's Gripen multirole fighter aircraft order book will dry up in 2012 unless new international contracts are secured. The Swedish company's failure to secure its largest-ever export deal in Norway has left it facing an uphill struggle in the international market
After a concerted but ultimately unsuccessful effort to clinch the largest export contract so far for the Gripen in Norway, Saab will be trying hard to secure one of several key contracts, which are set to be decided over the next 18 months.
On the heels of Norway's November 2008 announcement to procure 48 F-35 Joint Strike Fighter (JSF) aircraft at a cost of NOK18 billion (USD2.6 billion) instead of Saab's NOK24 billion proposal came further bad news for the company from the Hague.
Unsurprisingly, the Netherlands - a level-two partner in the JSF programme - opted for US aircraft in December 2008.
Denmark - a level-three partner in the JSF programme - is expected to follow suit as all three air forces switch from the F-16 to the F-35. Copenhagen's decision is expected in March this year.
Optimism and investors' concerns
Despite this setback, Saab, for its part, has been upbeat about its prospects in the international market. Following Norway's decision, it declared in December 2008 that it will continue to pursue new markets with the aim of selling up to 200 Gripen Next Generation (NG) aircraft - as offered to Norway - and is confident of success.
"We now move on and gather strength in markets where there is a real interest to evaluate Gripen. [It is] a very competitive alternative, operationally as well as financially," said Saab.
However, investors do not seem to share Saab's optimism. Credit Suisse noted in a 9 January paper to investors that "Saab underperformed the [aerospace and defence] sector significantly in the second half of 2008", partly reflecting "the loss of Norway as a potential customer for its Gripen".
The paper added: "An export sale for Gripen remains the most obvious upside catalyst, but we see few immediate decisions on key campaigns."
The next 18 months
Beyond the Danish, Dutch and Norwegian fighter programmes, Saab will concentrate on three key contests in Brazil, India and Switzerland, all of which will be decided over the next 18 months.
Failure in all three contests would attach a degree of uncertainty to the future of the Gripen programme, given that only the Czech Republic, Hungary, South Africa, Sweden and Thailand have ordered the aircraft to date.
At present, production of the Gripen will end in 2012 upon completion of the South African order, provided that no further orders are secured in the interim.
Furthermore, the enhanced Gripen NG variant that Saab is proposing for the majority of these upcoming competitions has yet to secure an order.
The programme, which aims to enhance a number of key capabilities on the aircraft such as the radar, electronic warfare systems and avionics while extending the aircraft's range, will still continue in the absence of an export customer but at a slower pace and as an upgrade to existing aircraft, rather than a new production standard.
Without the inclusion of another major partner in the NG programme, some of the proposed functionality may suffer delays, particularly given Sweden's current defence budget constraints. Stockholm announced in September 2008 that it would cut SEK2.78 billion (USD339.81 million) from its future equipment programme between 2009 and 2011, prompting Saab to comment on an anticipated "moderate impact".
Brazil, India and Switzerland - Gripen's prospects
In terms of prospects the Gripen seems well suited to the Swiss requirement for between 24 and 36 aircraft, which is expected to be announced later this year. However, the NG variant is not on offer because of Swiss time constraints on when the aircraft are to be delivered.
In Brazil, where the NG does compete, the contest looks set to be a close-run thing between the Saab aircraft and Dassault's Rafale, although ties between Brazil and Paris in the defence sector have become particularly close of late.
In India, which is by far the most important contest, where at least 126 aircraft worth more than USD9.5 billion are to be procured, the Gripen is considered a genuine contender. However, there is strong competition, particularly from Boeing and its F/A-18E/F Super Hornet, and if the Gripen NG fails to secure a customer in the interim, the uncertainty that this would cause may discourage the Indian Ministry of Defence from opting for the Gripen.
An additional six-aircraft order from Thailand is also expected to materialise in the short to medium term.
Outlook
The Gripen retains strong market potential largely based on its low through-life and procurement costs, planned enhancements and the extensive industrial participation agreements offered. Its appeal has been amply demonstrated by its presence in all the competitions mentioned above.
However, following the selection of the F-35 in the Netherlands and Norway and an expected third endorsement of the Lockheed Martin jet due soon in Denmark, the pressure to secure a contract is mounting, particularly given the number of contests set to be decided over the next 18 months. Saab will need to convert some of the Gripen NG's potential into firm orders if the aircraft is to retain its position in the fighter market beyond 2012.
© 2009 Jane's Information Group
