- Wall Street analysts changed their Lockheed ratings after photos emerged of new Chinese jets.
- They worry that the US could buy fewer Lockheed F-35s in favor of future jets still being designed.
- However, there is little evidence so far China’s new aircraft could match the F-35’s capabilities.
Glimpses of China’s next-generation jet fighter don’t just worry the Pentagon.
Wall Street worries that Lockheed Martin — maker of the three versions of the F-35 Lightning II stealth fighter, the most expensive weapon in history — could see its stock price tumble if the US military opts to buy fewer F-35s in favor of more advanced aircraft.
Deutsche Bank analyst Scott Deuschle had raised Lockheed’s rating to Buy in July, as market analysts predicted that multiple wars and higher global defense spending would boost revenue for the giant defense firm. Lockheed stock took a tumble Tuesday after trading around $500 a share, versus around $400 just before Russia’s invasion of Ukraine in February 2022, which has precipitated a frantic arms buildup in Europe and beyond.
But Deuschle downgraded Lockheed after China unveiled two stealth fighter prototypes in December. Little is known about the prototypes but some worry they could outmatch the F-35, a fifth-generation aircraft that first flew in 2006. Other investment banks also cut their ratings for Lockheed.
“We’re downgrading Lockheed to Hold (from Buy) as we feel our prior thesis struggles to hold water and we have increased concern on the long-term support for F-35 in the face of China’s combat aircraft modernization efforts,” Deuschle recently told investors, according to the Barron’s financial newspaper. His estimate for Lockheed’s share price dropped from $611 to $523.
The crux of the issue is that the US military is buying lots of F-35s. The Air Force plans to acquire 1,763 F-35A models by 2049, the Navy 273 carrier-based F-35Cs, and the Marine Corps 67 F-35Cs and 353 jump-jet F-35Bs. And this comes amid the increasing clout of SpaceX CEO Elon Musk, a top Trump advisor who recently called manned fighter jets like the F-35 obsolete.
Yet at the same time, the military is developing sixth-generation fighters, including the Air Force’s Next Generation Air Dominance program (NGAD) and the Navy’s F/A-XX, the replacement for its carrier-based fighters like the Super Hornet. The NGAD, which the Air Force hopes could fly by 2030, will have more advanced features than the F-35, including better engines, sensors and stealth capabilities, as well as the ability to team with robot fighters such as the Collaborative Combat Aircraft.
If sixth-generation fighters are coming, analysts worry that the Pentagon could buy fewer F-35s and spend the money on more advanced aircraft. “The reveal of further advancements in combat aircraft capabilities by China as potentially undermining long-term [Department of Defense] demand for the F-35 aircraft,” Deuschle wrote.
Deuschle’s concern is real, however there’s little public evidence to compare the new Chinese prototypes pound-for-pound with the F-35; even whether it is a fifth-generation aircraft is debated, with some airpower experts skeptical China has built the world’s first six-generation aircraft.
The F-35 has become the poster child for what critics denounce as wasteful government spending by the military-industrial complex. The program has been mired in controversy, delays and cost overruns since its inception in the 1990s.
The total price of the F-35, including acquisition and maintenance, has soared to more than $2 trillion, which is more than the annual GDP of most nations (US gross domestic product is $27.3 trillion). Even though more than 1,000 aircraft have already been delivered to the US and other nations, there are still concerns about bugs such as excessive maintenance demands, fragile stealth coatings, and a cannon that can’t shoot straight.
Compounding the problem is that F-35 acquisition will stretch over decades. Only 110 were delivered in 2024, and the US Air Force won’t receive the last jet until 2049. Given how rapidly technology evolves, a procurement program that stretches out more than 40 years is bound to struggle with obsolescence at some point.
Nonetheless, the fact that the F-35 has survived all the controversy is a warning not to underestimate its prospects. Put simply, the F-35 program may be too big to fail. The US military has invested enormous resources — and prestige — in the aircraft, while politicians may be reluctant to kill the golden goose. “More than 1,900 suppliers build and sustain the F-35 program in 48 US states and in more than 10 countries,” boasts Lockheed Martin’s F-35 website. Lockheed’s net earnings fell in the fourth quarter to $527 million, down from $1.7 billion in the fourth quarter of 2023, and contributed to the stock’s slide to $457 per share.
Whatever the flaws of the F-35, what aircraft could realistically replace it right now? The US combat air fleet is aging: the average F-16, for example, is more than 30 years old. The Air Force has hedged its bets by buying some F-15EX fighters to supplement the F-35. But while the F-15 has proven highly capable, an upgraded 1980s design can only so far into the 21st Century.
That pretty much leaves the inchoate NGAD as the alternative. But this naturally raises another question: given the problems with the F-35 and other big Pentagon projects, what if America’s sixth-generation fighter projects also suffer delays, cost overruns and teething problems? The Air Force has already paused the NGAD program amid estimates that the NGAD fighters will cost $250 million apiece, or about triple the price of an F-35.
Skeptics may also question the alarm over China’s new aircraft. So far, all the world has seen is a few images of two new Chinese aircraft. Despite breathless warnings that China might field a sixth-generation fighter before America does, the capabilities — and limitations — of the Chinese designs have yet to be revealed.
During the Cold War, new Russian weapons would be unveiled that would spur American fears of falling behind in the arms race, such as the mythical “bomber gap” of the 1950s. Often these Russian wonder weapons turned out to be dismal on the battlefield. America and China are vying to develop sixth-generation aircraft and other technologies like hypersonic missiles. But the threat posed by new Chinese stealth aircraft could similarly prove illusory.
Michael Peck is a defense writer whose work has appeared in Forbes, Defense News, Foreign Policy magazine, and other publications. He holds an MA in political science from Rutgers Univ. Follow him on Twitter and LinkedIn.
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