The Internet is buzzing this morning over the surprising news that Lockheed Martin's (NYSE: LMT) F-35 fighter jet is going to cost U.S. taxpayers well in excess of $1 trillion to produce and operate. That would be understandable, except for three things:
It's no surprise. It's not news. And when you get right down to it, $1 trillion really isn't a lot of money.
Begin at the beginning
First things first: This is not news. The Wall Street Journal may have deemed this story important enough to devote a whole page to it (with pictures!), but the fact is that we've been telling you for years that buying and flying 2,500 F-35s would cost $1 trillion and up. Factor in the 1,000 to 2,000 F-35s Lockheed hopes to sell to U.S. allies, and the number gets even bigger. Anyone who's "surprised" by today's WSJ story simply hasn't been paying attention.
Now, I get that the splashy headline in today's WSJ is going to shift the debate. Some folks will respond to it by saying we absolutely must fund General Electric's (NYSE: GE) proposed "alternate" engine, for example, as a way to make sure United Technologies (NYSE: UTX) doesn't drive up the price any further on the original F-35 engine. Others will argue (as I've suggested is possible), that the best way to control costs on the F-35 … is to not buy it at all. Instead, "plug the gap" in America's fighter jet fleet by purchasing new Lockheed F-16s and Boeing (NYSE: BA) F-18s instead.
All of which are valid arguments. But taking any of these actions in a WSJ-headline-induced panic is exactly the wrong move to make, because …
A trillion here, a trillion there … still ain't that much money
Here in the 21st century, "trillion" may be the new "billion" -- but it's still not a lot of money. Not when you consider what we get for it. For one thing, a "trillion dollars" spent over the anticipated 50-year lifetime of the Lockheed F-35 only works out to about $20 billion a year. Add in the flyaway cost of the plane itself, and the tally rises to $27.7 billion -- or less than $100 a year per U.S. citizen.
When you consider that:
- the F-35 isn't "just another airplane," but the single fighter jet designed to replace multiple fighters already in our air forces …
- according to Joint Chiefs Chairman Admiral Mike Mullen, this is the last manned fighter jet we'll ever buy …
- and that the $1.385 trillion figure covers the cost of the planes, their fuel, maintenance, training -- plus the cost of hangars, spare parts, and inflation even …
… I submit to you that we're really "not paying a lot for this muffler." The F-35's annual cost will make up all of 4.1% of our 2012 defense budget -- and that's not a lot of money to buy an air force.
A trillion bucks: It's all relative
In short, this "trillion-dollar price tag" really isn't as big a deal as the Journal makes it out to be -- at least not for taxpayers. In contrast, a trillion dollars is pretty significant to the companies that will be building and maintaining the plane -- subcontractors like GE, UTC, Honeywell (NYSE: HON), Northrop Grumman (NYSE: NOC), and FLIR Systems (Nasdaq: FLIR) (these latter three being responsible for the plane's wheels and brakes; its software, fire control radar, and communications; and its infrared radar, respectively.) And of course, to Lockheed itself.
Foolish takeaway
Make no mistake: The F-35 is crucial to the U.S. military's long-term planning. It will make up an important, and growing, portion of the revenue streams of Lockheed's partners. But as I think I've mentioned before, the F-35 is absolutely central to the investment case for Lockheed itself. Revenues from U.S. F-35s alone could secure an average of 60% of Lockheed's annual revenue stream for the past 12 months -- for the next half-century. Factor foreign F-35 sales into the mix, and Lockheed could put perhaps 75% of its revenue stream in the bag from this one product alone.
The F-35 is the single most important reason that last year, I nominated Lockheed to the Fool's list of 10 core stocks for your portfolio. Today's trillion-dollar brouhaha notwithstanding, I remain convinced it deserves a place there still.
