Why Is The F-35 Program Important For Lockheed Martin?

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The F-35 Lightning II aircraft is one of the most stellar examples of advanced aviation technology out there. It has been designed with the sole purpose of combating advanced 21st century enemies that are capable of superior air defences. It is the most fierce, and the most capable jet, ever built, and Lockheed Martin (NYSE: LMT) is expected to benefit from the production of this aircraft well into the coming decade.

What Makes The F-35 Special?

The aircraft is a fifth-generation fighter, and the only jet amongst its competition to be stealth ready. The jet’s radar absorbing skin and configuration makes it invisible to even the most advanced radars. Furthermore, the aircraft is equipped to take on opponents in the information age. One of its most important attributes is its ability to collect, process, and disseminate information with assets across the battlefield in real time.

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Additionally, it has the capability to perform the tasks of multiple legacy carriers combined. For example, it is equipped to provide close air support, vertical take-off and landing, engage in electronic warfare, surface-to-air missile suppression, and much more. In this respect, an alternative to buying the F-35, is to buy and maintain multiple legacy planes capable of each of these tasks.

The jet has virtually no competition at the moment. As mentioned above, most other legacy jets were only built to effectively accomplish one or two of the tasks that the F-35 is capable of. Boeing‘s (NYSE:BA) F/A-18 Hornet and Eurofighter’s Typhoon jets are worthy opponents, but both aircraft lack significantly in comparison.

What Could Be A Potential Disadvantage?

The only thing that could work out in the legacy aircraft’s favor is its price tag. For example, the most advanced version of the F/A-18, the “Advanced Super Hornet,” would cost only about $79 million per unit, which is significantly lower than the price of a new F-35 aircraft.

That said, it seems as though Lockheed Martin is working hard to bring down the costs of its planes. The U.S. Air Force had in the past asked the company to bring the cost per plane down to about $85 million. As recently as May this year, Lockheed managed to bring the cost per plane down to just under $100 million (not including the engines), which is a significant drop. The latest bulk purchase by the Pentagon shows that LMT has made further progress in this respect.

A few months ago, the Pentagon ordered 90 planes at a price of about $7.2 billion and this brings the cost per plane down to a whopping $80 million. This again is exclusive of engines, however. At present, the engine costs about $16 million, bringing the cost for the complete plane to a grand total of $96 million. Regardless, this a major accomplishment by the company. What it essentially means is that Lockheed has managed to shave off about 20% of the airplane’s cost in just six months.

Going forward, we can expect the price to come down further, making it more affordable to potential customers.

Conclusion

Many governments are looking to replace older jets for newer ones as the life cycle of their fleets approach their end over the next decade. The company is expected to benefit greatly in this respect. At the moment, the program accounts for roughly 25% of Lockheed’s total revenue. We can expect this number to cross more than 50% over the next few years, if the company manages to bring the price down further.

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