F-35 Procurement Cuts: A Buying Opportunity for Lockheed Martin?

The U.S. Department of Defense's decision to slash F-35 procurement in 2025 has sent shockwaves through the defense sector. But is this a death knell for Lockheed Martin (LMT) or a buying opportunity? Let's dig into the data and the long-term trends shaping this story.

The Pentagon's Budget Cuts: A Necessary Speedbump or Structural Problem?

The Pentagon's FY2026 budget proposal reduces F-35 purchases by the Air Force to just 24 aircraft (down from 44 in FY2025). This cut stems from delays in the Technology Refresh 3 (TR-3) software upgrades, which halted deliveries in 2023 and left jets stranded at Lockheed's Texas facility. Congress has further weaponized its purse strings, withholding acceptance of 20 jets until the Pentagon proves fixes for software, radar, and sustainment issues.

But here's the key: this isn't a death sentence for the F-35. The TR-3 delays are temporary, and once resolved, deliveries could rebound sharply. The backlog of undelivered jets (now numbering in the dozens) creates a “pent-up demand” scenario. Meanwhile, the Pentagon's shift to fund hypersonic weapons and the B-21 Raider bomber doesn't negate the F-35's role as the backbone of U.S. air superiority—it just means Lockheed must prove it can execute.

Note: A 3-year chart would show LMT's stock resilience amid defense sector volatility, though recent dips reflect F-35 concerns.

The International Sales Engine: A Lifeline for Lockheed

While U.S. procurement stumbles, international demand is roaring. Lockheed's F-35 backlog stood at $176 billion at year-end 2024, driven by orders from key allies:
- UK: Committed to 138 F-35s (though debates over cost may shrink this to 60–80).
- Italy & Netherlands: Expanded orders to 90 and 52 jets, respectively, to meet NATO commitments.
- Australia: On track for 72 F-35As to replace aging fighters.
- Israel & Singapore: Smaller but steady orders as Security Cooperative Participants.

These sales are critical. The U.S. now accounts for ~55% of F-35 orders, down from 70% a decade ago. As Lockheed pivots to global customers, it's less reliant on Washington's whims. Even if U.S. buys shrink, international partners are doubling down on fifth-gen jets to counter rivals like Russia and China.

The Technical Fix: TR-3 and Block 4's Role in Long-Term Demand

The TR-3 delays are a temporary hurdle. Lockheed has invested $350 million internally to overhaul software development and testing, and Congress is now giving the company a lifeline: annual progress reports for five years will keep oversight in check but allow production to resume.

Crucially, the Block 4 upgrade—which adds hypersonic missile compatibility and advanced electronic warfare—depends on TR-3 fixes. If Lockheed delivers, the F-35 could dominate export markets for decades. Competitors like Sweden's Gripen E or France's Rafale lack the F-35's stealth and interoperability, making it a must-have for NATO allies.

Risks and Uncertainties

• TR-3 Delays Persist: If software glitches drag into 2026, Lockheed's stock could stay under pressure.
• U.S. Budget Reconciliation: ~$51 billion of the Pentagon's FY2026 procurement budget hinges on passage of Trump's reconciliation bill. A failure here could slash defense spending further.
• Global Geopolitics: Rising tensions in the Indo-Pacific or Eastern Europe could accelerate F-35 demand, but trade wars or sanctions (e.g., Turkey's expulsion from the program) could hurt.

Investment Thesis: Buy the Dip, but Mind the Risks

Lockheed Martin is a buy if you believe:
1. TR-3 fixes will allow deliveries to rebound to 170–190 jets/year by late 2025.
2. International orders will offset U.S. cuts, maintaining a multi-decade production runway.
3. The F-35's technological edge keeps it unmatched in export markets.

Risks include: Overexposure to U.S. political cycles, execution failures on Block 4, and a global arms slowdown.

The Bigger Picture: Defense Sector Resilience

The F-35 program isn't just about Lockheed—it's the linchpin of the $1.6 trillion defense industrial complex. Cuts here force investors to look elsewhere:
- Hypersonic Weapons: Boeing (BA), Raytheon (RTX), and Northrop Grumman (NOPG) are all beneficiaries of shifted funds.
- Cybersecurity: Askinosie & Co. (ASLN) and Palantir (PLTR) are playing key roles in Pentagon tech upgrades.

But don't write off Lockheed yet. The F-35's global footprint and the lack of credible alternatives mean this stock is a long-term hold for patient investors.

Final Takeaway

The Pentagon's F-35 cuts are a speedbump, not a roadblock. With $176 billion in backlog, international allies doubling down, and TR-3 fixes on track, Lockheed's future is still bright—if it can execute. For now, this is a stock to buy on dips, but keep a close eye on those software updates.

Note: A chart showing rising backlog and delivery numbers post-2025 would underscore the “pent-up demand” thesis.

Investment Grade: Hold with a Buy rating if TR-3 milestones are met. Risks: Technical delays, U.S. budget impasse. Price Target: $300/share by 2026 (current: ~$240).

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