The 2026 Defense Supercycle: Why Aerospace Giants Like RTX and LMT Are Irresistible 'Fortress' Plays in a Geopolitically Charged World

The global defense sector is entering a pivotal inflection point in 2026, driven by escalating geopolitical tensions, shifting economic paradigms, and a redefinition of strategic alliances. As nations recalibrate their security postures in response to persistent conflicts, technological rivalries, and economic fragmentation, aerospace and defense (A&D) giants like Raytheon Technologies (RTX) and Lockheed Martin (LMT) are emerging as quintessential "fortress" plays. These companies are not only capitalizing on surging defense budgets but also leveraging industrial resilience, margin expansion, and strategic innovation to cement their dominance in a high-stakes environment.

Geopolitical Catalysts: A New Era of Defense Spending

The 2026 defense supercycle is being fueled by a confluence of geopolitical and economic forces. NATO allies have accelerated defense spending in response to the prolonged conflict in Ukraine and China's assertive global ambitions. According to a report, European defense budgets are projected to rise by 22% in real terms between 2022 and 2025, with Germany and Poland leading the charge. The European Commission's Security Action for Europe (SAFE) mechanism further underscores this shift, enabling member states to bypass fiscal constraints to fund critical defense programs according to analysis.

Meanwhile, the U.S. remains a linchpin of global defense dynamics. With a defense budget expected to remain robust in 2026, Washington is incentivizing allies to deepen their military investments while simultaneously navigating trade policies that could reshape supply chains and industrial competitiveness as reported. However, fiscal pressures in Europe-exacerbated by high debt levels and domestic economic challenges-pose risks to long-term cohesion. A potential fragmentation of European defense cooperation could create both opportunities and uncertainties for A&D firms, depending on how regional priorities evolve.

RTX and LMT: Strategic Positioning in a High-Demand Market

Raytheon Technologies and Lockheed Martin are uniquely positioned to benefit from this supercycle, with their diversified portfolios, technological edge, and operational agility. RTX, for instance, has a record $251 billion backlog as of Q3 2025, driven by international demand for missile defense systems and radar technology. A $3.5 billion contract from Germany for Standard Missile-6 and Standard Missile-2 systems exemplifies the global appetite for RTX's capabilities. The company's commercial aviation divisions, including Pratt & Whitney and Collins Aerospace, further bolster its financial resilience, with aftermarket sales contributing to strong cash flow generation as noted.

Lockheed Martin, meanwhile, is capitalizing on its leadership in missile defense and advanced targeting systems. A $328.5 million award for Taiwan and a $142.6 million sustainment contract for THAAD systems in the UAE highlight its strategic relevance in volatile regions. Q3 2025 results underscore LMT's financial strength: revenue of $18.6 billion, a 9% year-over-year increase, and a 10.9% segment margin, reflecting disciplined cost management and operational efficiency according to earnings. The company's $179 billion backlog provides long-term visibility, while its $3.3 billion in free cash flow and $9 billion share repurchase authorization signal confidence in its capital deployment strategy as reported.

Industrial Resilience: R&D, Supply Chains, and Margin Sustainability

The "fortress" thesis for RTX and LMT hinges on their ability to sustain margins and adapt to evolving challenges. Both companies are prioritizing R&D investments and supply chain resilience to mitigate risks from tariffs, geopolitical disruptions, and inflationary pressures. RTX, for example, has allocated $60 million to expand its Tucson, Arizona, facility and $285 million to modernize Pratt & Whitney's foundry in Asheville, North Carolina, reinforcing domestic manufacturing capacity as detailed. These investments not only enhance cost competitiveness but also align with U.S. government priorities to reduce reliance on foreign suppliers according to market analysis.

Lockheed Martin's supply chain strategy emphasizes sustainability and risk mitigation, with initiatives such as supplier partnerships and participation in industry-wide sustainability assessments as highlighted. The company's Q3 2025 segment margin of 10.9%-a 9% year-over-year improvement-demonstrates the effectiveness of these measures according to financial data. Additionally, LMT's integration of sixth-generation technologies into the F-35 program aims to deliver 80% of next-gen capabilities at 50% of the cost, ensuring long-term competitiveness in a market where advanced airpower remains a cornerstone of national security as disclosed.

Margin Expansion and Long-Term Competitive Advantages

The financial metrics of RTX and LMT paint a compelling picture of margin expansion and industrial resilience. RTX projects free cash flow of $7 billion in 2026 (excluding pension contributions), driven by its diversified portfolio and cost transformation initiatives as analyzed. For LMT, the focus on operational efficiency and shareholder returns-evidenced by a 5% dividend increase and $6 billion in 2025 shareholder returns-underscores its commitment to balancing growth with capital discipline according to Q3 earnings.

Moreover, both companies are leveraging their technological ecosystems to secure future contracts. RTX's Raytheon BBN Technologies is developing predictive models to enhance U.S. Department of Defense supply chain resilience, while LMT's F-35 program remains a critical economic driver, supporting over 290,000 jobs across the U.S. and generating $72 billion annually as reported. These competitive advantages position RTX and LMT to outperform peers in a sector where geopolitical volatility and technological innovation are inextricably linked.

Conclusion: Fortress Plays in a Fractured World

As the 2026 defense supercycle unfolds, RTX and LMT stand out as exemplars of strategic industrial resilience. Their ability to navigate fiscal constraints, geopolitical fragmentation, and supply chain challenges-while expanding margins and securing long-term contracts-makes them indispensable to investors seeking stability in an uncertain world. With defense budgets set to rise and technological competition intensifying, these aerospace giants are not just beneficiaries of the supercycle; they are architects of its success.