Over the course of 60 years, Lockheed Martin (LMT +1.58%) expects to collect roughly $1.5 trillion in revenue selling -- and servicing, maintaining, and upgrading -- its F-35 Lightning II stealth fighter jet around the world. Already, F-35 sales account for 37% of Lockheed's business, according to Reuters. Last week, Lockheed took a big step toward getting the rest of the way toward its goal.
As Lockheed debuted its F-35 to potential buyers at the Paris Air Show last week, rumors began swirling regarding a possible 11-nation, $40 billion deal to sell as many as 440 F-35 fighter jets around the globe. Reportedly, in addition to the United States itself, interested buyers include the nations of Australia, Denmark, Italy, the Netherlands, Norway, Turkey, and Britain -- all of which number among the nine partner countries that originally signed on to develop the F-35. Other buyers may include Israel, Japan, and South Korea, which did not participate in the F-35's development.
Lockheed Martin's F-35 stealth fighters are among the most expensive warplanes in the world. Image source: Lockheed Martin.
What's in the box?
Negotiations are not yet final, but Reuters reports that if the sale comes together, it will comprise three tranches of planes to be delivered between 2018 and 2020. F-35A conventional takeoff and landing (CTOL) fighter jets would retail for about $88 million in 2018, with that price falling to $85 million in 2019 and then to just $80 million in 2020.
Of course, if the rumors are correct, Lockheed Martin plans to sell not only F-35A fighter jets (which cost a bit less than $95 million right now, and could conceivably come down to $80 million per unit when produced at scale), but also pricier F-35B "jump-jet" variants, and F-35C aircraft carrier-capable fighters. Because those latter versions of the F-35 cost much more than $95 million today, the total value of the contracts being negotiated could easily reach $40 billion or more.
What does it mean for Lockheed Martin?
When Lockheed Martin finally broke the $100 million-per-unit barrier on the F-35A last year, that was big news. This latest news is much bigger. The $80 million-per-plane price posited for F-35A sales in 2020 would not only be the lowest price ever recorded for an F-35, but would actually fall below Lockheed Martin's widely publicized target of getting the plane's price down to $85 million.
What's more, an $80 million price tag would undercut Boeing's (BA 3.10%) pricing on less advanced fourth-generation F-15 and F/A-18 fighters. It would also render moot an argument that Boeing has been making lately, that the U.S. Navy should substitute planned F-35 purchases with purchases of cheaper F/A-18s to plug a gap in Navy carrier air wings.
Granted, even if Lockheed succeeds in getting the F-35A price-competitive with Boeing's F-15, that may not be enough to wholly invalidate Boeing's argument. It still remains to be seen whether Lockheed can get prices on the F-35B and -C variants -- the only ones that can land on aircraft carriers -- down to levels competitive with Boeing's carrier-capable F/A-18.
If it succeeds, though, Lockheed Martin could sweep the field, and push Boeing back out of the fighter jet business for good.
