Lockheed Martin (LMT 0.20%) builds America's only two fifth-generation "stealth" fighter jets, the F-22 Raptor (production of which has already ceased) and the F-35 Lightning II (production of which is ongoing).
That sounds pretty impressive. Most other countries in the world still fly non-stealthy fourth generation jets. And yet, the F-22 was introduced into U.S. service 20 years ago, in 2005, and the F-35 10 years ago, in 2015. While superior to most military jets, neither one is exactly cutting edge anymore.
Meanwhile in China, the final week of December saw the People's Liberation Army demonstrate not one, but two new fighter jets, both of which appear to be sixth-generation designs.
And we don't have any sixth-generation jets at all.
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China's new year surprise
TheWarZone.com reported on both Chinese jets late last month. The first is described as a "tailless ... stealthy, high-performance sixth-generation crewed combat aircraft." The aircraft appears to be larger than either the F-22 or F-35, measuring approximately "70 feet from nose to tail," and possibly powered by an unorthodox three engines. TWZ says between the engines and the size, the new aircraft may be designed for long-distance operations, perhaps as a tactical bomber rather than a fighter.
TWZ reports that the aircraft may be built by China's Chengdu Aircraft, possibly designated the J-36.
Less than 24 hours later, a second stealth fighter was spotted in Chinese skies. Different in shape, equipped with two rather than three engines, but also lacking a tail, the second aircraft is said to be smaller than the first, and is believed to have a different manufacturer: Shenyang Aircraft. Interestingly, TWZ was unable to confirm if the second aircraft even had a cockpit, raising suggestions that it might be a drone.
Apart from all this, TWZ pointed out that China is rumored to be creating a stealth bomber known as the JH-XX, hinting that the aircraft spotted in December could be associated with this endeavor.
Image source: Getty Images.
What this means for American defense contractors
Commenters have noted that although China has made no official announcements regarding any of these planes, it's unlikely their appearance in such rapid succession was coincidental. Rather, the unofficial footage of the aircraft in test flight appears to be a sort of message to the country's rivals, confirming that China is making progress in sixth-generation fighter technology, and toward its goal of fielding these advanced planes no later than 2035.
So what does that mean for Lockheed Martin, which makes America's only stealth fighters? What does it mean for Boeing (BA +1.57%), which initially bid against Lockheed to develop its own version of what became the F-35? And for Northrop Grumman (NOC 1.16%), which built the B-2 Stealth Bomber and is currently building its successor, the B-21?
Well, the last question is the easiest to answer. In 2023, Northrop Grumman dropped out of the competition to develop a sixth-generation fighter jet for the U.S. Air Force, the so-called "Next Generation Air Dominance," or NGAD fighter -- so Northrop's really not relevant to this story anymore. Remaining in the running are both Lockheed Martin and Boeing (although the latter is in a much-diminished state, relying on an unprofitable defense division that it may or may not be trying to sell, to support its bid).
Now, the good news here is that the Air Force is hoping to get NGAD in the air sometime in the 2030s, roughly the same timeline that China has floated. So, despite what we saw last week, China hasn't necessarily taken over the lead in sixth-generation fighter technology from the U.S. aerospace giants.
Still, the race is closer than we might have thought -- and for investors, that's a clue that there's a sixth-generation arms race afoot. This means the Pentagon really must keep funding the NGAD -- notwithstanding reports last year that it might cancel the program over cost concerns. That's good news for Lockheed, which I have to consider the odds-on favorite to build any new stealth fighter jets, based on its experience building the last two. It also suggests a reason why Boeing might decide not to sell its defense business.
No matter how much money defense is losing Boeing today, even the chance that Boeing might win an NGAD contract to build up to 200 warplanes at $700 million each (that's $140 billion total) tomorrow is a strong clue that Boeing will remain in this race -- at least up until the time when it loses NGAD to Lockheed.
