The F-35 Supply Chain: A Stealthy Investment Play in Defense Tech

The F-35 Lightning II Joint Strike Fighter has emerged as the cornerstone of modern airpower, driving a global supply chain that spans over 30 countries and employs hundreds of thousands. With geopolitical tensions fueling defense spending and the F-35's production ramp-up, investors are increasingly eyeing the manufacturers and subcontractors critical to its success. Let's dissect the opportunities in this high-stakes sector.

Recent Contracts: A Blueprint for Growth

Recent contract awards underscore the F-35 program's momentum. Here are key highlights:

1. Lockheed Martin's Dominance:
2. Awarded a $127 million modification (March 2025) to sustain flight test support for the F-35, covering labs in Texas, California, and the UK.
3. A $180 million deal to convert three production aircraft into test planes for Block 4 upgrades, a critical step to maintain testing capabilities.

4. Lot 18 production includes 145 jets for U.S. and international customers, with $11.76 billion in funding secured through 2027.

5. Saab's Training Tech:

6. Secured a $65.7 million modification for its Force on Force Training Systems-Next (FoFTS-Next), enabling the Marine Corps to achieve full operational capability by 2027.

7. This system uses advanced simulation, with 75% of work done in Sweden, highlighting Saab's niche in specialized defense tech.

8. Pratt & Whitney's Engine Upgrades:

9. Won a $1.3 billion contract (Sept 2024) to develop the F135 Engine Core Upgrade (ECU), enhancing durability and cooling for Block 4 capabilities.

10. A separate $1.5 billion F119 sustainment deal (Feb 2025) ensures reliability for F-22 fleets, underscoring its role as a propulsion leader.

11. Global Partnerships:

12. Italy and Japan are building assembly lines, with Lockheed providing tooling support for 14 jets in Italy and 39 FMS aircraft.
13. The UK, Australia, and Norway contribute billions to the program, relying on F-35s for their air defense modernization.

Lockheed's shares have risen steadily amid sustained F-35 demand, though geopolitical risks (e.g., tariffs, cost inflation) pose headwinds.

Geopolitical Drivers: Why Demand Is Skyrocketing

The F-35's global expansion is fueled by three key trends:
1. Alliances in a Tense World: NATO expansion, Indo-Pacific tensions, and Russia's aggression have pushed allies to modernize air forces. Over 20 nations (including Japan, South Korea, and the UAE) have ordered F-35s.
2. Technological Supremacy: The F-35's stealth, sensor fusion, and software-defined systems make it unmatched in combat. Countries like Australia (via AUKUS) and Poland are prioritizing F-35 purchases to counter adversaries.
3. Software as a Competitive Weapon: The U.S. retains control over F-35 software upgrades, creating a recurring revenue stream for contractors like Lockheed and Raytheon (RTX), which manage Block 4 and 5 upgrades.

Key Suppliers Positioned for Sustained Growth

While Lockheed is the linchpin, smaller players offer concentrated upside:

1. Saab (SAAB.B Stockholm):
2. Leverages its expertise in training systems and cybersecurity (e.g., FoFTS-Next).

4. A rising star in European defense tech, with strong ties to U.S. programs.

5. Pratt & Whitney (RTX):

6. The F135 engine's sole supplier, with ECU upgrades critical to Block 4 capabilities.

7. $2.4 billion in ECU R&D ensures long-term relevance despite cost pressures.

8. Advanced Materials Specialists:

9. Seemann Composites (small-cap) secured a $97.9 million contract (March 2025) for composite propulsor components, a niche with high barriers to entry.

10. Collins Aerospace (COL) and Honeywell (HON) compete for thermal management systems (EPACS vs. PTMS), with a winner-takes-most dynamic.

11. Logistics & Training:

12. Kira AAR Logistics (a joint venture) won a $98 million training contract for E-6B pilots, highlighting demand for specialized support services.

Investment Thesis: Play the Supply Chain, Not Just the Fighter

The F-35 program isn't a one-off sale—it's a decades-long ecosystem of upgrades, training, and maintenance. Investors should focus on three pillars:
1. Prime Contractors with Scale: Lockheed Martin (LMT) and Raytheon (RTX) benefit from recurring software and sustainment contracts.
2. Niche Suppliers with Moats: Saab (training), Seemann (composites), and Pratt (engines) have specialized roles with high barriers to competition.
3. Global Partnerships: Companies tied to international assembly (e.g., Japanese and Italian firms) gain exposure to export demand.

Risk Factors:
- Cost Overruns: Unit prices hit $100M+, squeezing margins unless efficiency improves.
- Trade Policy: U.S. tariffs on imported components could disrupt supply chains.
- Alternative Threats: Cheaper rivals like the Eurofighter Typhoon or China's J-31 may erode demand.

Final Take: A Stealthy Play for Growth Investors

The F-35 supply chain offers a rare mix of defensive stability (steady military budgets) and technological innovation (AI-driven upgrades). While Lockheed remains the king, the real upside lies in specialized subcontractors like Saab and Seemann, which can deliver outsized returns. For a diversified portfolio, pair these picks with ETFs like SPDR S&P Aerospace & Defense (XAR) to hedge against single-stock risk.

In a world where airpower defines security, the F-35's supply chain is anything but optional. Investors who bet on its ecosystem may find themselves soaring higher than the jet itself.