Key Points
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Boeing recently landed a $131 billion contract to enhance the Air Force’s F-15 fighter jet.
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There are implications for Lockheed Martin in that deal.
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The contract shows the Department of Defense (DoD) is committed to extending the lifespan of successful avionics platforms.
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One need not be an avionics expert to understand that military aircraft are described in generational terms. That lesson was effectively taught in the 2022 blockbuster Top Gun: Maverick, where the term “fifth generation,” or “fifth gen,” was used to describe unidentified enemy fighter aircraft.
Fear not, because the U.S. is the leader in the development of fifth-generation fighter jets, but those planes are expensive to produce, and some older planes are still plenty useful in combat. Hence, Boeing (NYSE: BA) recently won a contract worth as much as $131.2 billion to produce more of and enhance existing planes in the Air Force’s F-15 fleet.
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Boeing won a big F-15 contract, but it’s relevant to Lockheed Martin investors, too. Image source: Getty Images.
The original F-15 Eagle first flew in 1972. Still, the current iteration is considered fourth-generation or fourth-generation-plus, implying that new models and upgrades to current aircraft are akin to “generation 4.5.”
Not to be lost in the F-15 shuffle are potential implications for Lockheed Martin (NYSE: LMT). Some investors may think that Boeing and Lockheed are in a dogfight, but the latter can benefit from the former’s big contract win. Here’s why.
Don’t forget the Fighting Falcon
Officially dubbed the “Fighting Falcon” and colloquially known as the “Viper,” the Air Force’s F-16 is produced by Lockheed Martin in South Carolina with new models shipped exclusively to foreign customers. However, the U.S. is showing commitment to the F-16.
While the Air Force has said “No thanks” to some Lockheed products, the branch of the military announced earlier this year it’s shelling out $438 million for an F-16 upgrade cycle for 48 jets. Obviously, that’s nowhere near the size of the Boeing F-15 agreement, but the point is the Air Force still sees value in the F-16, and it’s willing to put its money where its mouth is to that effect.
As it should. Perhaps Lockheed is “talking its own book.” Still, the manufacturer describes the F-16V as the most technologically advanced version of that jet, adding to its legacy “as the world’s foremost combat-proven 4th Generation multi-role fighter aircraft.”
The point is that global defense budgets are soaring, and the White House is requesting fiscal 2027 defense outlays of $1.5 trillion, implying a robust fighter jet upgrade cycle that could benefit multiple manufacturers, not just Boeing.
Lockheed may be the safer bet
Boeing is a well-documented turnaround story, and much of that turnaround needs to occur in its commercial aircraft unit. Undoubtedly, there are signs of progress on that front, as deliveries are at their highest level in eight years. Still, passenger jet issues aren’t material to Lockheed investors because the company isn’t involved in that space.
So it’s not a stretch to say that of these two stocks, Lockheed is the cleaner, potentially safer story due to its focus on defense contract procurement. That’s not a guarantee of share price appreciation, but it is confirmation that Lockheed isn’t dependent on the often cyclical nature of commercial aircraft demand and upgrade trends.
Of note to long-term investors considering Lockheed is that the company very much has its hands in the “fifth gen” fighter-jet pie. Interestingly, Boeing and Lockheed work together in the production of the F-22 Raptor, but let’s focus on the F-35 Lightning, of which Lockheed is the sole producer.
That aircraft is widely considered the most technologically advanced fifth-generation combat aircraft in the world, and because technology is, well, always advancing, the need to stay on top of F-35 upgrades is persistent and potentially material to Lockheed’s top and bottom lines. We’re not talking about small fixes and “tinkering” here.
Modernizing this jet to keep it on the cutting edge of technology is one reason why the program’s procurement cost is now estimated at $536.2 billion, or $51 billion more than the 2023 forecast. That probably isn’t what government bean counters want to hear, but with air superiority a must-have for governments worldwide, Lockheed Martin is in the right place at the right time.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing and Lockheed Martin. The Motley Fool has a disclosure policy.
