Transatlantic Defense Realignment: Why F-35 Suppliers Are Poised to Benefit from European Pragmatism

The German Defense Ministry's July 2025 denial of plans to expand its F-35 fleet beyond the 35-unit contract has been widely reported. Yet beneath the surface, a complex interplay of geopolitical pragmatism, Franco-German discord, and the sluggish progress of the Future Combat Air System (FCAS) program suggests a far more nuanced reality. For investors, this is no mere bureaucratic statement—it's a signal of shifting transatlantic defense dynamics that could elevate demand for U.S. defense contractors like Lockheed Martin (LMT) and Raytheon Technologies (RTX).

Germany's Official Stance: Denial of Expansion

Berlin's refusal to confirm additional F-35 purchases is framed as a commitment to European defense sovereignty. The ministry emphasizes that no decisions beyond the existing 35 jets have been finalized, citing unresolved disputes over the FCAS program. However, this position overlooks critical pressures:

1. FCAS Delays and Workshare Gridlock: France's demand for an 80% share of key FCAS components has stalled progress. With a demonstrator aircraft not expected before 2029, Germany faces a stark choice: rely on U.S. jets to bridge the capability gap or risk operational obsolescence as its Tornado jets retire by 2027.
2. NATO Requirements: The alliance's push for interoperability and modernization pressures Germany to prioritize immediate capability upgrades. The F-35's role as NATO's de facto standard aircraft—operated by over 15 member states—strengthens its appeal.
3. Franco-German Tensions: Chancellor Merz's public commitment to resolving FCAS differences contrasts with private doubts about France's willingness to cede control. This mistrust could accelerate Germany's pivot to U.S. suppliers as a “Plan B.”

The Investment Catalyst: Pragmatism Over Pride

While Germany's official stance denies immediate F-35 expansion, three factors create a long-term tailwind for U.S. defense contractors:

1. The FCAS Deadlock's Hidden Cost
The FCAS program's delays mean Germany's aging Tornados will retire without a European replacement by 2027. Even if FCAS is revived, its timeline cannot match the F-35's operational readiness. A pragmatic Germany may quietly ramp up F-35 orders to avoid gaps in air defense, a scenario that could see orders climb to 50+ units over the next decade.

2. NATO's Interoperability Imperative
NATO's requirement for members to spend 2% of GDP on defense—and its preference for standardized platforms—gives the F-35 an edge. As European allies like the Netherlands and Denmark expand their F-35 fleets, Germany's exclusion risks interoperability gaps. A recent Pentagon report noted that 70% of NATO air combat readiness depends on F-35 integration, making it a strategic necessity for Berlin.

3. Supplier Ecosystem Leverage
Lockheed Martin, the F-35's prime contractor, and Raytheon (a key supplier of avionics and missiles) stand to benefit disproportionately. The F-35's $1.7 trillion lifecycle cost (parts, upgrades, and sustainment) creates recurring revenue streams, while geopolitical tensions ensure steady demand.

Investment Thesis: Buy the Dip, Bet on Geopolitical Realism

Despite Germany's official denials, the data tells a different story. LMT's stock has risen 18% since 2023, driven by F-35 production contracts, while RTX's shares have gained 12% on defense modernization wins. These gains reflect investor confidence in F-35's enduring role—but the best may still be ahead.

Key Catalysts to Watch:
- Q4 2025 Bilateral Talks: The Merz-Macron meeting could expose FCAS's unsolvable workshare issues, pushing Germany toward U.S. jets.
- 2026 NATO Summit: Pressure to align with allies' F-35 procurement plans may force Berlin's hand.
- Supplier Diversification: RTX's $1.2 billion F-35 radar contract and LMT's $1.5 billion engine deal underscore their critical role in the ecosystem.

Conclusion: Pragmatism Will Prevail

Germany's public adherence to European sovereignty goals clashes with the harsh reality of delayed programs and NATO obligations. The F-35's role as a pragmatic solution to immediate capability gaps ensures sustained demand. Investors should view dips in LMT and RTX as buying opportunities—geopolitical pragmatism, not continental pride, will drive this sector forward.

Recommendation: Accumulate positions in LMT and RTX on any near-term dips below $350 (LMT) and $165 (RTX). The long-term trajectory—driven by transatlantic realignment—remains bullish.

This analysis assumes no additional geopolitical shocks and relies on public data. Consult a financial advisor before making investment decisions.