Lockheed Martin's Strategic Shift in a Post-NGAD Landscape: Can It Regain Aerial Dominance Through F-35 Modernization?

The U.S. defense sector is undergoing a seismic shift as Boeing’s F-47 NGAD program emerges as the cornerstone of sixth-generation air dominance, while Lockheed Martin pivots to revitalize its F-35 Lightning II. This strategic realignment raises critical questions about long-term earnings resilience and competitive positioning in a market where technological leapfrogging and budgetary constraints collide.

The F-35’s Reinvention: A “Fifth-Generation Plus” Gambit

Lockheed Martin’s loss of the NGAD contract to Boeing in March 2025 has forced a recalibration of its strategy. CEO Jim Taiclet has championed a “fifth-generation plus” F-35, leveraging technologies from the NGAD bid to deliver 80% of sixth-generation capabilities at half the cost of the F-47 [1]. This approach hinges on integrating advanced stealth features, long-range tracking systems, and new weapons into the F-35’s Block 4 upgrade, which includes over 80 improvements such as the APG-85 radar and EO-DAS infrared imaging system [2].

However, the Block 4 modernization, estimated to cost $16.5 billion, has been plagued by delays in the Technology Refresh 3 (TR-3) upgrade, which is critical for full operational capability [3]. The Air Force has cut its 2026 procurement from 48 to 24 F-35s, citing readiness concerns [4]. Despite these hurdles, the F-35 remains a linchpin of U.S. and allied air forces, with 3,500 units planned for production. International demand, particularly from Japan, South Korea, and the UK, continues to buoy Lockheed’s revenue streams [5].

Boeing’s F-47: A High-Stakes Bet on the Future

Boeing’s F-47, awarded a $20 billion cost-plus-incentive-fee contract, represents a clean-sheet design for sixth-generation air dominance. With a projected unit cost of $300 million and a combat radius of 1,000 nautical miles, the F-47 aims to replace the F-22 Raptor and integrate with Collaborative Combat Aircraft (CCA) drones [6]. The Pentagon’s 2026 budget allocates $3.5 billion for the F-47, prioritizing it over the Navy’s F/A-XX program [7].

While the F-47’s advanced stealth and range position Boeing as a leader in next-gen fighter development, its high costs and delayed timeline (expected operational deployment by 2030) create uncertainty. Analysts question whether the F-47 can justify its expense, especially as the F-35’s modernization extends its relevance for decades [8].

Financial Resilience: Contrasting Paths

Lockheed Martin’s Q2 2025 financials reveal a mixed picture. The company reported $18.2 billion in sales but incurred a $1.6 billion loss from a classified aeronautics program and $950 million in charges related to the F-35’s thermal management issues [9]. Despite these headwinds, the F-35 program’s $72 billion annual economic impact and 290,000 jobs provide a buffer against budget cuts [10].

Boeing, meanwhile, benefits from a more favorable contract structure for the F-47, reducing exposure to cost overruns. Its operating cash flow has improved, and the F-47’s long-term potential could drive revenue growth. However, Boeing’s reliance on a single platform for sixth-gen dominance introduces risk if development timelines slip further [11].

Strategic Implications for Investors

The defense sector’s shift toward sixth-gen fighters is reshaping competitive dynamics. While Boeing’s F-47 is a strategic win, Lockheed’s F-35 modernization offers a pragmatic bridge to the future. The F-35’s proven combat record, international sales, and cost advantages position it as a durable revenue generator, even as the F-47 gains traction.

For investors, the key question is whether Lockheed can sustain its earnings resilience amid modernization delays and Pentagon budget shifts. The company’s ability to deliver a cost-effective “fifth-generation plus” F-35 will determine its relevance in a market increasingly dominated by sixth-gen aspirations.

Conclusion

Lockheed Martin’s strategic pivot to enhance the F-35 is a calculated response to its NGAD loss. While Boeing’s F-47 represents the future of air dominance, the F-35’s extensive production backlog, international demand, and modernization roadmap suggest it will remain a critical asset for decades. The defense sector’s long-term growth will depend on balancing near-term operational needs with the high-stakes gamble of sixth-gen development.

Source:
[1] After NGAD loss, Lockheed says it will 'supercharge' F-35 [https://www.defenseone.com/business/2025/04/after-ngad-loss-lockheed-says-it-will-supercharge-f-35/404756/]
[2] Where the F-35 program stands: big upgrades, long future [https://www.aspistrategist.org.au/where-the-f-35-program-stands-big-upgrades-long-future/]
[3] USAF won't resume full F-35 buys until Lockheed wrings ... [https://www.defenseone.com/policy/2025/07/usaf-wont-resume-full-f-35-buys-until-lockheed-wrings-problems-upgrade/406934/]
[4] How the 2026 Budget Shapes the Future Air Force Fighter ... [https://www.airandspaceforces.com/2026-budget-air-force-fighter-fleet/]
[5] Economic Impact - F-35 Lightning II [https://www.f35.com/f35/about/economic-impact.html]
[6] ANALYSIS: Weighing the cost of the F-47 - Aerospace America [https://aerospaceamerica.aiaa.org/analysis-weighing-the-cost-of-the-f-47/]
[7] Pentagon budget goes 'all in' on Air Force's F-47, putting Navy's program on hold [https://defensescoop.com/2025/06/27/dod-2026-budget-request-air-force-f47-navy-faxx/]
[8] Why Lockheed Martin Wants to Upgrade the F-35 [https://nationalinterest.org/blog/buzz/why-lockheed-martin-wants-to-upgrade-the-f-35]
[9] Lockheed Martin Reports Second Quarter 2025 Financial Results [https://investors.lockheedmartin.com/news-releases/news-release-details/lockheed-martin-reports-second-quarter-2025-financial-results]
[10] Where the F-35 Program Stands: Big Upgrades, Long Future [https://www.realcleardefense.com/articles/2025/08/25/where_the_f-35_program_stands_big_upgrades_long_future_1130630.html]
[11] Boeing Won the F-47 Contract -- and Maybe F/A-XX as Well [https://www.nasdaq.com/articles/prediction-boeing-won-f-47-contract-and-maybe-f-xx-well]