RTX's $2.8–2.9 Billion F-35 Engine Contract: A Strategic Catalyst for Long-Term Growth

In an era marked by escalating geopolitical tensions and the urgent need for technological superiority, the defense industrial base has emerged as a critical linchpin for national security and economic resilience. Raytheon Technologies (RTX), through its Pratt & Whitney division, has secured a $2.8–2.9 billion contract to produce F135 engines for the F-35 Lightning II, a cornerstone of U.S. and allied airpower. This contract, part of Lot 18 and extending through February 2028, is not merely a financial milestone but a strategic affirmation of RTX's role in sustaining a defense ecosystem that balances innovation, industrial capacity, and geopolitical stability.

The Geopolitical Imperative: Defense Spending as a Tailwind

Global instability—from conflicts in the Indo-Pacific to hybrid threats in Europe—has accelerated defense modernization efforts. The F-35 program, with its emphasis on fifth-generation capabilities, is central to this shift. RTX's F135 engine, which powers all three variants of the F-35 (CTOL, CV, and STOVL), is a linchpin of this strategy. The $2.8 billion Lot 18 contract, coupled with a $1.3 billion Engine Core Upgrade (ECU) initiative, ensures the F135 remains at the forefront of propulsion technology. These contracts are structured with a hybrid cost-plus-incentive-fee and fixed-price-incentive-fee model, mitigating risks while incentivizing efficiency—a critical feature in an environment where supply chain disruptions and production delays are increasingly common.

The geopolitical tailwinds are clear: the F-35 program is backed by bipartisan support in Congress and spans 43 U.S. states, supporting over 67,000 domestic jobs and 240 suppliers. This industrial footprint is not incidental; it is a deliberate strategy to anchor defense capabilities in a resilient supply chain. As defense budgets expand globally, RTX's position in this ecosystem offers a unique blend of recurring revenue and long-term visibility.

Recurring Cash Flow and Industrial Resilience

The F135 program exemplifies the power of recurring cash flow in capital-intensive industries. Beyond initial production, the program includes spare engines, modules, and depot-level sustainment, creating a lifecycle of demand. The ECU contract, for instance, is designed to enhance engine durability and integrate future Block 4 capabilities, ensuring the F135 remains relevant for decades. This is further reinforced by the Enhanced Power and Cooling System (EPACS), which will boost the F-35's electrical capacity to support advanced sensors and electronic warfare systems.

RTX's financial structure reflects this durability. The hybrid contract model balances risk and reward, with cost-plus elements providing a buffer against unforeseen challenges and fixed-price components driving cost discipline. This duality is particularly valuable in a high-risk environment, where geopolitical volatility can disrupt timelines and budgets. For investors, the $92 billion defense backlog at RTX—of which the F135 program is a cornerstone—offers a clear runway for earnings growth.

Strategic Positioning for the Future

The F-35 program's strategic importance extends beyond its technical capabilities. It is a symbol of multinational cooperation, with 12 countries operating the aircraft and more in the pipeline. This global footprint ensures that RTX's propulsion systems are not just a U.S. asset but a linchpin of international alliances. The program's economic impact—$9.1 billion in 2024 alone—further cements its role in sustaining domestic industries while aligning with global defense priorities.

Looking ahead, RTX's plans for an F135 Engine Core Upgrade starting in 2028 are projected to save $40 billion over the fleet's lifetime. These savings, combined with EPACS advancements, position the company to capitalize on future modernization cycles. For investors, this represents a compounding opportunity: the F135's role in the F-35's evolution ensures that RTX remains a key player in the next generation of airpower.

Investment Implications

RTX's F-35 engine contracts underscore a broader trend: the defense sector's shift toward long-term, technology-driven partnerships. In a world where geopolitical risks are no longer episodic but persistent, companies with robust industrial bases and recurring revenue streams are poised to outperform. RTX's hybrid contract structure, bipartisan political support, and alignment with global defense modernization efforts make it a compelling long-term investment.

For those seeking exposure to the defense industrial base, RTX offers a unique combination of strategic relevance and financial discipline. The company's ability to navigate complex production environments while maintaining profitability—evidenced by a 13% increase in adjusted operating profit for Pratt & Whitney in Q2 2025—highlights its operational strength. As defense budgets continue to expand, RTX's F135 program is not just a contract; it is a blueprint for sustainable growth in an uncertain world.

In conclusion, RTX's F-35 engine contracts are a testament to the enduring value of industrial resilience and strategic foresight. For investors, they represent a rare convergence of geopolitical necessity, technological leadership, and financial durability—a compelling case for long-term confidence in the defense sector.