Lockheed Martin's (NYSE: LMT ) F-35 is projected to cost almost $400 billion just for acquisition and development. Further, an estimate from the Cost Analysis and Program Evaluation office, or CAPE, puts the price to operate and maintain the F-35s for the next 55 years at $1.1 trillion. The F-35 is the most costly weapons system in U.S. history. Additionally, while the F-35 was designed to replace a number of weapons systems like the A-10, so far it hasn't. So, is the F-35 a colossal waste of taxpayer's money?
Electronic warfare vs. the F-35
As I wrote before, Boeing (NYSE: BA ) has been incredibly critical of the F-35's ability to survive against evolving threats across the electromagnetic spectrum -- and for good reason. In 2009, espionage efforts, believed to be the work of the People's Republic of China, lead to the successful theft of sensitive design data for the F-35.
Fortunately, Pentagon and Lockheed officials told Reuters that no classified information was taken. However, USAF Col. Michael W. Pietrucha argues that espionage efforts, as well as technological advances, may have compromised the F-35 long ago. More importantly, recent activities on Capitol Hill may confirm this fear.
The A-10 battle
The A-10 attack plane has been in service since the late 1970s, and the F-35 is supposed to take its place. Unfortunately, while the Air Force has recommended retiring the A-10 -- something that's estimated to save $3.7 billion over five years -- and replace it with F-35s, lawmakers have become increasingly skeptical of the idea due to fear over the F-35's abilities.
Brian Davis, president of the National Guard Association of Michigan, told National Defense Magazine that one of the benefits of the A-10 is that the 30mm cannon is immune to electronic warfare -- the same can't be said of the F-35's bombs. Plus, Sen. John McCain, a longtime critic of the F-35, criticized the Air Force's plan to retire the A-10 by pointing out that the F-35 is supposed to reach initial operating capability in 2016, but only by using a "less lethal version of software," according to Military.com.
Furthermore, in its latest defense bill, the House of Representatives voted against the Air Force's attempt to retire the A-10 fleet. And that was before the F-35's latest "episode."
As if espionage and doubts weren't enough, earlier this week an F-35A caught fire as it was taking off from Eglin Air Force Base. So far, there's no official word on what caused the fire, but military commanders have suspended flights of the F-35A at Eglin. More importantly, as Breaking Defense rightly pointed out on its site, considering that the F-35 is still in the test phase, and a low rate of production, this could prove to be a problem.
The flip side
The above news paints a bad picture for the F-35, but there are counterarguments to the critics. First, Lockheed emphatically rejects Boeing's assessment, and states that the F-35 is more than capable of surviving, and thriving, in a conflict. Second, while it's true that the F-35 hasn't been "battle tested" yet, some of the unease in Congress regarding the A-10's retirement could be based on re-election concerns, and not strictly on the F-35's "believed" lack of ability. For example, Rep. Candice Miller has strongly opposed retiring the A-10, but she represents a district in Michigan that would be negatively affected from the A-10's retirement.
What to watch
Lockheed Martin's F-35 is a hot topic on Capitol Hill. Moreover, it's cost taxpayers a significant amount of money. Unfortunately, only time will tell if it's worth it. The good news is that Frank Kendall, undersecretary of defense for acquisition, said about the F-35, "Program progress is sufficient for the department to budget for an increase in the production rate in fiscal year 2015." However, considering that the F-35 made up 16% of Lockheed's total consolidated net sales in 2013, and that there's still a great deal of uncertainty regarding its ability as a next-generation fighter, Lockheed investors would be smart to closely follow the F-35's progress, or lack thereof.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks, like Lockheed Martin, simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.