Is Lockheed Martin Doomed?

"There are those that see JSF as the last manned fighter. I'm one that's inclined to believe that." -- Admiral Mike Mullen, chairman of the U.S. Joint Chiefs of Staff

For Lockheed Martin (NYSE: LMT  ) shareholders, Admiral Mullen's prediction sounded a joyous yawp of confidence back in May. If manned fighter jets truly are on their way out, then Lockheed occupies the catbird's seat. It controls the last big fighter jet program ever. It's looking to oversee $1 trillion (or more) in total costs over the next 60 years, and it need never again compete with Boeing (NYSE: BA  ) to build the next blockbuster.

Or not
Pundits in Washington did their best to dump cold water on that optimism this week. Arguing that the "JSF" (Lockheed's F-35 Lightning) program is too expensive, they suggested that we don't really need 2,000-plus fighter jets. But don't worry, Fools. Their arguments have more holes in 'em than a glider flying out of an ack-ack storm. A Reuters article published Wednesday laid out the arguments against the program.

Fighters? Bombers? What-ever!
"Rather than buying both new long-range bombers and thousands of short-range F-35 fighters, DoD might consider whether the new bombers ... could represent a cost-effective substitute for some number of these new fighters."

So argues the "Center for Strategic and Budgetary Assessments" (CSBA) -- and it's an argument I disagree with.

Substitute bombers for fighters? That's like trying to substitute sheep for sheep dogs. Bombers, by definition, bomb stuff -- period. While bombers provide larger payload capacity than the F-35, part of the rationale for calling them cost-effective, they are also less flexible in their use and have a higher price tag per plane. Fighters like the F-35, in contrast, do a whole lot more. They kill the other guy's bombers. They keep the other guy's fighters from killing our bombers. And, time and targets permitting, they do some bombing of their own. But fighters and bombers are not interchangeable. The idea of substituting one for the other is ridiculous.

Um, seriously folks. Who is flying this thing?
"[Building unmanned aerial vehicles instead of fighter jets] "could enable a radically different force structure that achieves the same level of effectiveness at a much lower cost."

Yeah -- but you get what you pay for, folks. I agree that UAVs are the way of the future. Textron (NYSE: TXT  ) , General Dynamics (NYSE: GD  ) , Northrop Grumman (NYSE: NOC  ) , and L-3 Communications (NYSE: LLL  ) aren't sinking hundreds of millions of dollars into researching and building the gizmos for the heck of it. UAVs will eventually become so robust that they'll be able to replace manned fighter jets for certain tasks.

But until someone builds a UAV capable of going mano-a-mano with a MiG -- and winning -- you simply cannot afford to remove manned fighter jets from the U.S. arsenal. Right now, any contest between a real fighter and a UAV is no contest at all -- it's handing air supremacy to the bad guys.

No cake for you -- I'll eat it
"In the coming years, pressure will likely continue to grow for DoD to scale back its plans, including both major modernization efforts and force structure plans."

Granted. And in fact, the budget hawks succeeded in scaling back plans for building out the U.S. Air Force. Just last month, the threat of an Obama veto frightened both the Senate into cutting funding for Lockheed's F-22 Raptor, and eliminating a backup F-35 engine that General Electric (NYSE: GE  ) was building.

But to refute the CSBA, the same people who had the F-22's funds pulled defended their action by arguing the money was needed elsewhere -- in particular, to fund accelerated F-35 production. Now, I can understand the logic of cutting funding for a $140 million fighter jet (the F-22) in order to build more F-35s, budgeted at as little as $80 million apiece. That's practically "buy one, get one free."

But CSBA's argument boils down to a bait and switch -- the exact opposite of the old "have your cake and eat it too" transaction. First they take away Lockheed's F-22s in exchange for more F-35s. Then, having succeeded, CSBA tries to take away the F-35s too. That's not just unfair -- it's downright dangerous to national security.

Foolish takeway
Now, I don't want to leave you with the impression that the CSBA's arguments are entirely disingenuous. UAVs are in fact a good, cost-effective way to kill bad guys who live in caves, have no air force, and can't shoot back.

Problem is, not all threats and international flashpoints are like that. A second group of countries have long-range missiles, and lob them in the general direction of Japan and Hawaii. Others have an army that threatens Taiwan, are intent on stealing our own fighter jet designs, and occasionally try to crash the Internet. Still other countries parade their growing arsenals through Red Square, float nuclear submarines off the East Coast, and invade the occasional democratic nuisance on their border. Oh, and they also have advanced air defense systems and fighter jets of their own.

While I'm all for building weapons systems tailored to defeating the first group of bad guys, I'm 100% against stripping the Pentagon of the tools it needs to defend ourselves against the second group.

Time to chime in
But enough about me. What do you think about the CSBA's recommendations? Can the U.S. afford the 2000-plus F-35's for its Air Force? Can we trust North Korea, China, and Russia to play nice if we don't have one? The floor is open for comments -- scroll down, and post away.

Fool contributor Rich Smith owns shares of Boeing, General Dynamics is a Motley Fool Inside Value recommendation, and The Motley Fool's disclosure policy is bulletproof.


Read/Post Comments (12) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 14, 2009, at 1:04 PM, Edson946 wrote:

    The problem with cutting back military spending at this point is how little of the overall benefit actually goes to the military. Continued funding of these programs maintains viability within the dwindling US industrial base. Reduction of fleet size equates to a reduction in overall supply chains within the civilan sector, with an economic trickle-down. Multiply that by a 20 or 30 year lifespan of the fleet, and you're likely looking at a negative overall impact to the economy, negating any suspected savings on the front end.

    As for the UAV debate, such craft would have to be so loaded with high-tech equipment in order to provide a remote operator with the same situational awareness experienced by a human pilot so as to negate any savings in training and career pay. Additionally, electronic brains can only account for functioning and malfunctioning, so I believe a UAV fleet would experience more down time and sortie abortions than a manned fleet due to the generation of fault reports that a human has the ability to determine to on his own to ignore or address. Also, the military provides the bulk of our commercial airline pilots, so what happens when that well runs dry?

  • Report this Comment On August 14, 2009, at 1:14 PM, derwinb wrote:

    The F-22 has a payload of 19,000 vs. 13,000 lbs for the F-35, more bang. Twin engines to single engine, more survivable. But, the current price is almost 2 to 1 and flight performance is similar. I haven't seen any numbers on range for the F-22 but the F-35 radius is 600mi. Sounds like a good deal. When will the F-35 be deployed though? Everyone on the line is ecstatic about the F-22. Let's see what the response will be to the F-35.

  • Report this Comment On August 14, 2009, at 2:15 PM, BobTC wrote:

    Given the long time that it takes to develop and produce these kinds of systems for our military we cannot wait until we have the "for certain" answer. There are many first, near first world powers and non governmental terrorist organizations that would like to challenge our strength and resolve.

    Hedging our bets to allow for the F-35 production line to get started and purchasing an adequate force structure is an intelligent thing to do - as is the continued development of advanced capability UAVs. UAVs give us the ability to reach into places that we do not want to send people.

    Keeping the F22 line open with small purchases by the US will make it a more attractive for our Allies to purchase and this supports our cause and our burden.

  • Report this Comment On August 14, 2009, at 2:38 PM, TMFDitty wrote:

    >>Keeping the F22 line open with small purchases by the US will make it a more attractive for our Allies to purchase and this supports our cause and our burden<<

    Conversely, the fewer F-35s Congress funds, the higher the unit cost. Foreign buyers lined up to support this program at one price, but I wonder how they will respond if the per-plane price goes up?

  • Report this Comment On August 14, 2009, at 5:01 PM, emuellner wrote:

    It's scary when the price of our freedom comes down to just the dollars and cents portion of the argument. China seems to be able to afford to expand and upgrade their military systems while tens of millions of their populace lives in poverty.

    What could be the purpose of these new weapons? Especially when their wish list includes items such as aircraft carriers which are weapons of power projection and not deterence.

  • Report this Comment On August 14, 2009, at 7:00 PM, Killerjets wrote:

    Intersting Article. The size of the contact is not immediate it streaches out for decades. The aircraft fills the needs of all three aviation segments of our forces with a common design. Future upgrades to these aircraft for the most part will be across the board meaning, common engineering for upgrades, common parts manufacturing and common raw material. This is a huge savings if managed correctly and common changes to the aircraft will keep spare parts common in the future. A positive financial investment for America. Oh ya, Not to mention the international sales and maintenace that go along with it.

  • Report this Comment On August 14, 2009, at 7:20 PM, BrianBristow wrote:

    Go up against a mig and win? What is this? 1985?

  • Report this Comment On August 14, 2009, at 11:26 PM, tumble1weed wrote:

    Hmmm, I don't usually post on these kind of boards, but I couldn't resist. The comments are such a mix of informed and uniformed opinions that I felt I had to comment.

    Ok, a couple of points here. First off, Aircraft carriers are not necessarily weapons of "power projection". They are the means of delivering our fighters where they are needed. Remember the saying, the best defense is a strong offense? If we did not have the ability to "project" our offense when needed, there are many around the world that would be quick to take advantage.

    Secondly, in response to "Go up against a mig and win?, What is this? 1985?" No, it's 2009 . . . and almost every country that we might find ourselves flying against in air combat fly one version of Mig or another. Maybe you should make the effort to educate yourself on the military situation around the world before you embarrass yourself with comments like that.

  • Report this Comment On August 14, 2009, at 11:38 PM, mrbox wrote:

    On August 14, 2009, at 7:20 PM, BrianBristow wrote:

    Go up against a mig and win? What is this? 1985?

    Umm there are still countries that fly the MiG 29.

    The MiG is about the same age as the USAF F-15s and F-16s. I dont have the exact time-frame but there are multiple versions between 1975-1985.

  • Report this Comment On August 15, 2009, at 7:50 AM, exseries7 wrote:

    The author is correct that you cannot replace a fighter with a bomber. I thought we learned that lesson in the Vietnam with the F4 Phantom performance Vs. the F-105 Thunderchief.

  • Report this Comment On August 15, 2009, at 11:10 PM, matsterman wrote:

    Well, it only TOOK LOCKHEED MARTIN 3 YEARS TO DRIVE THE FAA'S FLIGHT SERVICE INTO THE GROUND AND TURN IT INTO SOMETHING RATHER USELESS, so, I would say at this point, watch out for anything Lockheed Martin does or says.

    And definitely dont buy jacksheet from them, hi tech fight or even a pencil

  • Report this Comment On August 16, 2009, at 10:03 PM, NOTvuffett wrote:

    Am I missing something here? Any government spending on any left-tarded project is supposed to stimulate the economy but defense spending on things like fighter jets is wasteful and a good place for the government to curb cost and benefit the economy? It takes thousands of directly employed workers to make these planes. Why is it better for somebody to build a bike path than a plane?

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