MAY 1983 - VOLUME 4 - NUMBER 5
Northrup's Tigershark: An Adventure In Free Market Military Sales
by John Pike
In 1977, when President Jimmy Carter reduced the Pentagon's role in promoting arms sales to the Third World, the Northrop Corporation lost the key supporter of one of its pet projects, the Tigershark F-20 fighter plane. So the company decided to go it alone with its plan for the jet, the only U.S. military aircraft ever developed without direct government support or advance customer orders.
By the time Carter reversed his policy, Northrop was ready with its modern, high-tech aircraft. The plane was adopted in 1980 by the new FX (fighter export) program, which divided responsibility for sales between the manufacturer, who markets the aircraft, and the Air Force, which approves and handles the final sales.
But $360 million later, Northrop has yet to sell a single plane, suggesting the conclusion that "free enterprise" defense sales are all but impossible.
Tigershark carries a sophisticated electronics system and a single General Electric engine. The plane is designed for air defense and counterinsurgency operations, but is incapable of flying far enough to conduct major offenses on nearby countries. It retails for $9 million, $4 million less than the other plane sponsored under the FX program, General Dynamics' F-16/79.
There are two reasons for the Tiger -shark's dismal sales record. One is that General Electric, which also makes the engine for the F-16, has not promoted the Tigershark as it usually would because it can count on more income from its General Dynamics' sales.
A second reason lies in the design of the plane. Since it has limited capabilities, the Tigershark is dubbed a "second rate" aircraft by the Pentagon, and is designed for sale to governments where the U.S. does not want to threaten neighboring countries. According to one defense analyst, no nation wants to admit to buying a second-rate aircraft.
The Tigershark disaster has not helped Northrop's corporate earnings. Despite the company's contract to develop the Stealth Advanced Technology Bomber and a major portion of the McDonnellDouglas F-18, Northrop's share of the Pentagon pie has dwindled in recent years. In 1976, the company ranked third among defense contractors; by 1981, it had fallen to 26th place. The only major source of non-military work for Northrop is production of a section of the body of the Boeing 747. That contract accounted for 17 percent of Northrop's 1981 sales. But depression in the commercial plane market has hit Northrop hard, and its 747 manufacturing plant is operating at a fraction of capacity.
Unlike other companies that record large expenses only when they generate enough income to offset them, Northrop has been writing off Tigershark expenses as they occur. This practice will greatly improve the company's balance sheet if sales do come in, but meanwhile, Northrop's financial fate looks bleak. The company's earnings fell 45 percent in 1981, and rose only slightly last year.
Tigershark's prospects received a momentary lift in January 1982, when Northrop persuaded the Taiwan government to purchase 100 planes for a total of $1 billion. (Northrop had actually designed Tigershark with Taiwan in mind.) Some of Reagan's close aides supported the sale, including Michael Deaver, once a registered agent for Taiwan. But Secretary of State Haig, Defense Secretary Weinberger, CIA Chief Casey, and the Joint Chiefs of Staff opposed the sale, arguing that it would unnecessarily provoke Peking. They ultimately prevailed, and in the summer, Taiwan was promised another, third-rate, fighter aircraft.
The future of the Tigershark looked bleak again until July 29, 1982, when Deputy Defense Secretary Frank Carlucci ordered the Navy and the Air Force back into the arms marketing business. Departing from previous policy, he directed the services to "selectively but actively encourage the foreign procurement of the FX [aircraft], not leaving this marketing effort just to the manufacturers." The new policy even permitted the services to provide potential customers with classified data if it would help close a deal.
The Carlucci memo listed a number of countries that were strong prospects for the FX "because of a combination of threat, absorbability [ability to use and maintain arms] and fiscal resources" including Turkey, Egypt, Jordan, Malaysia, Philippines, Thailand, Indonesia, Bahrain, UAE (United Arab Emirates), Oman, and Saudi Arabia. Carlucci also noted that "it is likely that, as our post-Falklands policy toward Latin America is clarified, we shall want to promote the FX selection in our own hemisphere." Some of these countries, such as Saudi Arabia and Turkey are slated to receive more capable planes, supplemented with the Tigershark. The Carlucci memo also resolved another of Northrop's worries, that it might be forced into a time consuming competition with the General Dynamics F-16/79 for selection as the sole bearer of the FX designation.
In November 1982 Northrop persuaded the Air Force to change the designation of the Tigershark in an attempt to upgrade the plane's image. But there were still no firm sales. Bahrain has ordered four Tigersharks for the fall of 1982 as part of a $180 million arms deal, but these planes will only be produced if other sales come through.
Northrop is also trying to cut a deal with India for the sale of 50 planes for $400 million. In mid-April 1983 Northrop Chairman Thomas V. Jones announced that production of the Tigershark would not begin until the company had received orders for at least 300 of the planes. If all else fails, Nothrop can rely on the close personal friendship between Northrop's Chairman and Chief Executive Officer Thomas Jones and President Ronald Reagan to salvage Tigershark sales. This relationship has given Jones and his company unique access to the White House. As in so many other industries, the fortunes of Northrop may rest on having close friends in high places.
John Pike is Multinational Monitor's defense correspondent