Lockheed's Good Offense

Things couldn't have looked better for Lockheed Martin (NYSE: LMT  ) back in October of 2001. The defense giant had bested Boeing (NYSE: BA  ) to win the lead role for the Joint Strike Fighter (JSF) program, a then-$200 billion contract to replace aging fighters in the U.S. armed forces and in the militaries of several other nations, including the U.K., Australia, and Italy.

It's amazing what a difference a few years can make. Lockheed still retains the gigantic program, but in the intervening years, unmanned aerial vehicles (UAVs), which have the distinct advantage of not risking human lives, have taken on starring roles in the war on terror. Privately held General Atomics Aeronautical Systems' Predator is the best know of these, although Northrop Grumman's (NYSE: NOC  ) Global Hawk has also garnered positive reviews.

Along with the rise of the drones, Lockheed has hit some snags with the JSF, including cost overruns and the project's international partners threatening to pull out of the project. With the war in Iraq weighing on the U.S. budget and drones coming into their own, some in Congress are suggesting scaling back JSF purchases.

But recently, Lockheed has shown that the best defense is a good offense. Last month, it revealed that it is no slouch in the UAV department. As noted by Fool contributor Jack Uldrich, the company's experimental Polecat UAV is made using some potentially revolutionary manufacturing technology.

Lockheed's latest UAV revelation may be even more mind-blowing. Management has indicated that over the past two years, it has been working on technology that could convert JSFs into drones. As yet there are no orders for such a plane, but even if none emerge, the company has to be credited with an exceptionally astute marketing move. The capability to transform such a sophisticated plane into a drone demonstrates that it intends to be a major contender in the rapidly growing UAV market.

And of course, it's certainly possible that JSF drones could be ordered, potentially extending the plane's production run and sweetening Lockheed's profits. The company has indicated that a JSF drone would have roughly the same price tag as the manned version. Given that JSF development work has already been done, government purchases of JSF drones may even make sense from a cost standpoint.

In the competition for future defense dollars, Lockheed appears to have gained some altitude.

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Fool contributor Brian Gorman does not own shares in any of the companies mentioned.

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10/27/2016 4:02 PM
LMT $248.53 Down -1.56 -0.62%
Lockheed Martin CAPS Rating: ****
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Boeing CAPS Rating: ****
NOC $225.35 Down -2.70 -1.18%
Northrop Grumman CAPS Rating: ****