The Geopolitical Implications of Germany's F-35 Purchase and Its Impact on Defense Sector Investments

Germany's decision to procure 15 additional F-35A fighter jets from Lockheed Martin, expanding its order to 50 aircraft, marks a pivotal moment in European defense strategy. This €2.5 billion deal, expected to begin deliveries in 2027, reflects Berlin's prioritization of immediate operational readiness over long-term European defense integration. The procurement replaces aging Tornado aircraft and ensures Germany's role in NATO's nuclear sharing arrangements, with the jets based at Büchel Air Base. However, the move could spark tensions with France over the stalled Franco-German Future Combat Air System (FCAS) project, underscoring broader geopolitical shifts in the European defense landscape, Defence Industry reported.

Lockheed Martin's Strategic Windfall and Financial Challenges

For Lockheed Martin, the expanded F-35 order represents a critical boost to its defense business. The F-35 program, a cornerstone of the company's operations, delivered 50 aircraft in Q2 2025 alone, despite challenges such as U.S. defense spending cuts and delays in software upgrades. International sales, including Germany's supplementary procurement, account for a significant portion of Lockheed's revenue. However, the company's Q2 2025 financial results revealed $1.6 billion in program losses, driven by a classified Aeronautics program and the Canadian Maritime Helicopter Program, which pressured earnings per share to $1.46, Lockheed Martin reported. While the F-35 order provides long-term stability, near-term financial performance remains constrained by legacy program costs and an IRS dispute over a $4.6 billion tax liability, .

The geopolitical implications for Lockheed Martin are profound. As European nations increasingly prioritize U.S. platforms for their advanced capabilities and interoperability with NATO, the company's stock valuation could benefit from sustained international demand. However, risks persist: U.S. technical support for the F-35 could wane amid shifting priorities, and European pushback against perceived reliance on American defense systems may intensify.

European Defense Industry: Sovereignty vs. Pragmatism

Germany's F-35 procurement highlights a tension between strategic autonomy and operational pragmatism. European defense budgets are projected to grow at 6.8% annually through 2035, driven by Russia's aggression and China's military expansion, Morningstar projects.

The European defense sector's stock valuations have soared amid this spending boom. The broader European aerospace and defense index hit a near-record high in early 2025, with companies like Rolls-Royce and BAE Systems seeing significant gains, The Financial Analyst reported. Private equity investment in defense also surged, with global PE/VC deals in the sector reaching $4.27 billion in Q1 2025, S&P Global noted. However, Germany's F-35 purchase risks undermining European defense integration efforts, as it signals a preference for proven U.S. systems over untested European alternatives.

Long-Term Strategic Positioning and Investment Outlook

The F-35 procurement underscores a broader trend: European nations are balancing immediate security needs with long-term strategic goals. While the U.S. remains a critical supplier of advanced military technology, European firms are leveraging increased budgets to invest in next-generation capabilities like drones and AI, A&O Shearman observed. The EU's SAFE initiative, with a €150 billion budget, aims to bolster joint procurement and industrial capacity, but its success hinges on political cohesion, an HGBr analysis warned.

For investors, the defense sector presents a duality. U.S. primes like Lockheed Martin offer stability through high-demand programs but face margin pressures from legacy contracts. European firms, meanwhile, benefit from rising budgets and M&A activity but grapple with geopolitical fragmentation. The key lies in identifying companies that can navigate both U.S.-European tensions and technological innovation.

Conclusion

Germany's F-35 purchase is a microcosm of the evolving defense landscape. It reinforces U.S. influence in European security while exposing the fragility of European defense integration. For investors, the takeaway is clear: defense stocks with diversified international exposure and robust R&D pipelines-such as Lockheed Martin's Missiles and Fire Control segment-will outperform in a volatile geopolitical climate. Yet, the long-term health of the sector depends on Europe's ability to balance sovereignty with pragmatism, a challenge that will define the next decade of global defense dynamics.