RTX's F-135 Engine Dominance: A Cornerstone of Defense Propulsion and Long-Term Earnings Growth

The recent $2.88 billion contract modification awarded to Raytheon Technologies (RTX) for the production of 141 F135 engines underscores its unrivaled position in the defense propulsion market. As the sole supplier of the F135 engine for the F-35 Joint Strike Fighter (JSF), RTX is not only securing a critical role in the U.S. military's modernization strategy but also locking in decades of revenue through a program that spans 13 international partners and 12 foreign military customers. This contract, part of Lot 18 of the F-35 production cycle, highlights RTX's ability to leverage its technological expertise and strategic partnerships to dominate a market with minimal competition.

Monopoly in a High-Stakes Market

The F135 engine is the beating heart of the F-35, a fifth-generation stealth fighter that forms the backbone of U.S. and allied air superiority. With no viable alternatives in the pipeline—despite past explorations of a next-generation engine by the Biden administration—RTX's monopoly is cemented by the F135's integration into the F-35's design. The engine's 43,000 pounds of thrust with afterburner and advanced thermal management systems make it indispensable for the F-35's mission-critical capabilities.

The contract's structure further solidifies RTX's dominance. Managed by the Naval Air Systems Command, the $2.88 billion deal includes both cost-plus-incentive-fee and fixed-price-incentive-fee models, ensuring predictable cash flows while aligning RTX's performance with cost efficiency. The funding breakdown—$656 million from the U.S. Navy, $614.6 million from the Air Force, and $513.7 million from foreign military customers—reflects the program's global scale. International partners, including the UK, Japan, and South Korea, are investing heavily in the F-35, creating a self-sustaining ecosystem of demand for RTX's engines.

Strategic Tailwinds: F-35 Expansion and Modernization

The F-35 program is a linchpin of U.S. defense strategy, with over 3,000 aircraft projected to be procured globally by 2040. RTX's F135 engine is central to this vision. The Lot 18 contract, which includes the Engine Core Upgrade (ECU) slated for 2029, will enhance thrust, thermal management, and auxiliary power for the F-35's computer systems. This upgrade, while delayed, ensures RTX's relevance in the next phase of the program, as the ECU is expected to reduce lifecycle costs and extend the engine's service life.

Moreover, the F-35 Joint Program Office's plan to definitize Lots 18 and 19 in 2025 signals continued production momentum. At an average cost of $20.4 million per engine, and with the F-35 airframe costing $81.1 million per unit, the total value of each aircraft underscores the scale of RTX's exposure. With the U.S. and its allies prioritizing airpower to counter emerging threats, the F-35's procurement rate is unlikely to wane, even as the Air Force shifts some focus to the F-15EX and NGAD programs.

Total Addressable Market and Revenue Projections

The total addressable market (TAM) for F135 engines from 2025 to 2030 is estimated to exceed $20 billion, factoring in initial procurement, sustainment, and modernization. The U.S. military aviation market is projected to grow at a 4.79% CAGR through 2030, driven by the replacement of aging aircraft and the need for advanced capabilities. RTX's dominance in this niche ensures it captures a significant portion of this growth.

Quantifying RTX's revenue potential, the Lot 18 contract alone represents $2.88 billion in near-term revenue. With 141 engines to be delivered by February 2028, and future lots (18-19) expected to be awarded in 2025, RTX's backlog is robust. Analysts project that the F135 program could generate over $15 billion in annual revenue for RTX by 2030, assuming a steady production rate of 150-175 engines per year. This is further bolstered by the engine's lifecycle management, including maintenance, repairs, and the ECU rollout, which could add billions in recurring revenue.

Competitive Landscape and Risk Mitigation

RTX's primary competitors in defense propulsion—Boeing, Lockheed Martin, and Northrop Grumman—lack the specialized expertise required for the F135. While these firms compete in broader defense markets, their involvement in propulsion systems is limited to niche applications like missile engines or space launch systems. RTX's focus on the F135, combined with its eFAST analytics platform for predictive maintenance, creates a moat that is difficult to replicate.

Financially, RTX's strong balance sheet and institutional ownership (86.5% of shares held by institutions) provide stability. Its net margin of 7.35% outperforms peers like Boeing (-14.18%), and its beta of 0.69 indicates lower volatility. These metrics, coupled with the F135's long-term contract visibility, position RTX as a defensive play in a sector prone to cyclical swings.

Investment Thesis

For investors, RTX's F135 engine business represents a high-conviction opportunity. The $2.88 billion contract is not an isolated win but part of a multi-decade program that aligns with global defense trends. With international demand for the F-35 showing no signs of slowing and the ECU enhancing the engine's value proposition, RTX is poised to deliver consistent earnings growth.

In a market where geopolitical tensions drive defense spending, RTX's monopoly on the F135 engine is a rare asset. While short-term risks like production delays or cost overruns exist, the program's strategic importance to the U.S. and its allies ensures that RTX will remain a key beneficiary of the F-35's dominance. For long-term investors, this is a compelling case of a company leveraging its technological edge and market position to secure a steady stream of high-margin revenue.

Conclusion: RTX's leadership in the F135 engine market is a testament to its engineering prowess and strategic foresight. As the F-35 program expands and modernizes, RTX's earnings potential is firmly anchored in a contract that transcends political cycles and economic fluctuations. For those seeking exposure to a defense sector cornerstone, RTX offers a compelling blend of stability, growth, and geopolitical tailwinds.