Lockheed Martin’s Winning Streak Continues in F-35 Program

Lockheed Martin‘s (NYSE:LMT) F-35 fighter jet program is continuing to witness growth in the global fighter jet markets. In an announcement made by the Pentagon, it was revealed that the defense contractor has won a $920 million contract to procure materials required in the production of 94 F-35 jets. ^[1]

This contract will give Lockheed Martin the substantial lead time required to be able to produce the contracted  94 fighter jets. The long time interval exists because of the fact that building materials like Titanium can be difficult to acquire. ((Lockheed wins $920 million deal for early work on next F-35 jet order, Reuters)) Over 55% of these jets are being built for use by various services within the U.S. military, with the remainder spread across countries such as the U.K, Italy, Australia, Norway and Turkey. ^[2] The completed deal, the total value of which is yet to be disclosed, will take Lockheed Martin one step closer to capturing over 50% of the global fighter jets market in the next five years. ^[3]

Lockheed Martin is posing the F-35 fighter jet program as a successor to the F-16 fighter jet’s, which are priced three to five times lower than the F-35s. At the higher price, F-35 offers superior stealth and electronic warfare capabilities which have been capturing the interest of defense services across the globe. The U.S. Air Force also recently indicated that moving forward it wants to invest in the next-generation F-35’s over other older models. ^[4] As military spending is kept on a tight budget, most defense services are posed with a tradeoff between investing in brand cheaper new legacy jets versus more expensive next-generation fighter jets which offer better functionalities and can potentially translate into higher value for the dollars spent. We expect that other countries will face a similar trade-off and pick the F-35 jets over legacy jets offered by other fighter jet makers like Boeing, and hence capture an increasing share of the global fighter jet market. There has already been some movement in this direction with Boeing’s older Super Hornet jets losing out to the next-generation F-35 in South Korea and Japan.

The F-35 jets have emerged to become a key growth driver at Lockheed Martin recently. In Q1 fiscal 2015, higher F-35 volumes as well as sustainment activities resulted in the program witnessing a $175 million year-over-year increase in net sales and $25 million increase in operating profit in Q1 2015. The strong demand for F-35 in international markets helped boost Lockheed’s performance in this quarter, leaving it relatively unaffected by defense spending cuts in the U.S. Lockheed Martin confirmed that this trend of growing international demand of F-35s will continue, as over half of the orders expected for this fighter jet in the next five years is expected to come from international customers.

We currently have a price estimate of $196.95 for Lockheed Martin, approximately 4% ahead of its market price.

See our complete analysis of Lockheed here

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1. Lockheed wins $920 million deal for early work on next F-35 jet order, Reuters [↩]
2. Lockheed Martin wins $920 mn contract for production of 94 F-35 Lightning II fighter aircraft, Defence News [↩]
3. Roundup of Aerospace Forecasts and Predictions, 2015, iBASEt [↩]
4. USAF prefers buying Lockheed Martin’s F-35 fighter, says official, Airforce-Technology.com [↩]