Financial Dogfight
It’s not exactly an iron law of economics, but it’s a pretty reliable rule nonetheless: When businesses compete, customers usually save money. Indeed, sometimes even the threat of competition can work wonders in pushing prices down. Last April, for example, Northrop Corp. offered to sell the Air Force 396 of its F-20 fighters at a promised “flyaway” price of $11.7 million each. That was intriguing, because Northrop’s quote undercut by several million dollars the price that General Dynamics Corp. currently charges for its F-16s. Congress, naturally enough, has shown a lot of interest in the Northrop offer. So, it turns out, has General Dynamics.
After thinking things over, and noting congressional sentiment in behalf of tighter defense budgets, General Dynamics has made an appealing offer of its own. The Air Force wants to buy 792 more F-16s over the next four years. General Dynamics now proposes that 216 of those be stripped-down versions, which essentially means that they wouldn’t carry some of the fancy navigation and weapons gear that is standard on other models. These fewer-option planes, General Dynamics says, could be delivered for about $2 million a unit less than what Northrop has offered.
General Dynamics, of course, wants to hold on to its lucrative market. Northrop, which privately financed the F-20 but has yet to sell any of the planes, is eager to crack that market, confident that if the Air Force takes its plane a lot of orders from foreign buyers will follow. The arguments over which is the better plane overall--in terms of performance, durability, maintenance costs and the like--are destined to become noisier. Both the modified F-16 and the F-20 would probably be used primarily for air defense, a mission that needn’t require some of the equipment now standard on the F-16. At a minimum, there now seems to be a good chance that the Air Force will have to spend less than it thought for some of its planes. Competition, even the specter of competition, can indeed be a wonderful thing.
