SAAB: 114 fighter aircraft on the line

Although SAAB's Gripen is a highly competitive aircraft, the Indian Air Force appears to be leaning toward the French Rafale in a deal worth ~200 BNSEK. Choosing a system already embedded in a nation's defense infrastructure, together with the bidders' capacity profiles, logically plays a role in the outcome, and it would not be surprising to us if media reports are correct and the French Rafale wins the award. Since we see the odds favoring the French Rafale, we treat this situation as business as usual with no impact on our estimates.

114 fighter aircraft on the line

Years after the procurement process for fighter aircraft began in 2018, the Indian Air Force (IAF) is reportedly reviewing proposals, according to The Times of India, The Wire (India) and other outlets. The original competition featured six fighters: Dassault Rafale, Eurofighter Typhoon, Boeing F/A-18 Super Hornet, Lockheed Martin F-16IN, Saab JAS 39 Gripen, and Mikoyan MiG-35. Reports now indicate that the competition has narrowed to a single viable option, the French Rafale. These outlets suggest that the Indian defense ministry is reviewing a proposal by Dassault Aviation for the procurement of 114 Dassault Rafale fighters, citing among other things, compatibility benefits since India already operates 176 Rafales. Although the odds appear to favor the Rafale over the Gripen, SAAB has communicated that they have not received any information that another aircraft has been selected.

Choosing a system that is already included in the IAF's architecture would allow the bypass of years of technical evaluations and testing that might otherwise extend delivery timelines if a completely new system such as Gripen were selected. This is in line with our view that high switching costs are embedded in the industry because of system complexity and the difficulty of integrating new platforms into existing defense infrastructure; hence, the news is no surprise to us. Capacity is likely another factor influencing the decision.  We believe that SAAB cannot simply reconfigure its supply chain to deliver as much capacity as larger rivals, which can be a disadvantage on large deals (+10% of backlog) on supply and capacity grounds. SAAB can produce about 10 aircraft per year and would need time to expand capacity and synchronize its supply chain, whereas Dassault Aviation guided for roughly 25 Rafale deliveries in 2025 and is targeting ~33 per year. In 2024, Dassault delivered 21 aircraft, 14 to France and 7 for export.

Since the deal is reportedly worth around 200 BNSEK, it qualifies as a "mega deal" in defense-sector terminology and is not included in SAAB's forward guidance. If the deal is lost, the company’s own outlook would not change. If it is won, the company would raise its outlook, but short-term capacity constraints make the size of any potential uplift hard to assess. Because our estimates align with company guidance, which excludes mega deals, and because we view the IAF’s selection of an already integrated system (still unconfirmed) as the base case for program expansions, this news does not affect our estimates.