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More bad news for Lockheed Martin: US Air Force just isn’t in the F-35

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At an estimated cost of $ 1.5 trillion, Lockheed Martin‘s (NYSE: LMT) The F-35 stealth fighter would ultimately become the most expensive weapons program in US history. It is also becoming one of the slowest deployments in history – and both could be problems for Lockheed.

Lockheed Martin’s F-35 could be preparing to bomb – and not in a good way. Image source: Lockheed Martin.

According to data from defense aerospace analysts at BGA-Aeroweb, Lockheed Martin had delivered 126 F-35s to the military until the end of last year. Add 28 more planes until the end of 2015, and this 15-year program has so far produced an average of less than 10 planes per year.

Why is it a problem? To meet its goal of deploying a force of 1,763 F-35A fighter jets by 2038, the US Air Force needs Lockheed to build nearly one complete combat wing – 72 F-35s – per year, all year, for the next 22 years old. Lockheed is working hard to hit full production by 2019. But even so, Air Force officials fear it will not be building the planes fast enough.

Moreover, even though Lockheed can build the planes, the Air Force may not be able to afford them.


Lockheed Martin’s F-35B can do a few neat laps – at a steep price. Image source: Lockheed Martin.

Slow and steady lose the race
BGA-Aeroweb estimates that each F-35 “A” plane currently costs taxpayers $ 129 million. (And it’s the cheapest version of the F-35. The F-35C transporter variant costs $ 170 million apiece, and a “hovering” F-35B jet will set you back $ 183 million.)

At these prices, the Air Force F-35 allocation alone will cost nearly a quarter of a billion dollars up front, with hundreds of billions of dollars more needed for maintenance and la maintenance, upgrades, fuel and armaments. (It’s these extra costs that make up the bulk of the widely touted “$ 1.5 trillion” value.)

Between problems of production rate and cost of the invoice, the Air Force is now considering alternatives to the F-35.


If Lockheed Martin can’t build planes cheap enough or fast enough, Boeing is ready to get the job done with its F-15. Image source: Boeing.

Everything old is new again
More precisely, it is about buying Boeing (NYSE: BA) Instead, F-15 Strike Eagles, F-16 Fighting Falcons, and even F / A-18 Super Hornets (!). According to AviationWeek.com, the Air Force could purchase up to a full fighter wing of these alternative F-35 – 72 planes.

Now we learned earlier this year that the Pentagon is negotiating with Lockheed over a possible F-35 bulk purchase. No specific prices have been revealed, but the Pentagon is said to want a price concession of around 10% on planes to buy them in bulk. Out of 72 F-35A fighters, that would represent a purchase price of about $ 8.4 billion.

In contrast, based on the most recent Pentagon pricing data, a purchase of …

  • 72 F-16C / D fighters, costing $ 27.4 million each, would cost less than $ 2 billion;
  • 72 F-15E fighters, at $ 45.5 million each, would cost $ 3.3 billion;
  • and 72 F / A-18E / F fighters, at $ 65 million each, would cost $ 4.7 billion.

In addition to the new planes, the Air Force would also modernize 300 of its existing F-16s and F-15s. The Air Force says it all might cost more than “buying F-35s in bulk.” But that would get more planes into service much faster – and if the costs aren’t unreasonable, it could be a viable alternative to buying more F-35s.

What this means for investors
Suffice it to say, however, that if the Air Force goes down that road, it won’t be good news for Lockheed Martin. Certainly, Lockheed builds the F-16 as well as the F-35. But because the F-16 costs so much less than the F-35, an Air Force purchase of 72 F-16s instead of 72 F-35s would cost Lockheed about $ 7.2 billion in anticipated revenue.

And this is the best of times.

The worst-case scenario is that the Air Force decides to buy F-15s from Boeing instead – or even F / A-18s (generally considered a naval fighter jet). Such a move would cost Lockheed $ 8.4 billion in lost revenue, instead transfer billions of dollars in new revenue to Boeing – and throw a lifeline for Boeing’s troubled defense business. That could force Lockheed to continue bidding against Boeing for fighter jet contracts for decades – not just here in the United States, but internationally as well.

For Lockheed Martin, I’m afraid, it never rains but it rains.


Pentagon buyers are lining up to buy the F-35 … no! Image source: Lockheed Martin.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.