Now, serious questions are arising about whether the F-35 can even shoot.
In the wee waning hours of 2014, website The Daily Beast published a scathing report on the status of testing of the F-35's 25mm GAU-22 Gatling gun, built for the plane by General Dynamics (NYSE:GD). The F-35A variant will join Air Force front-line fighter squadrons this year, and the F-35B variant will enter service in 2016. But citing unnamed sources within the U.S. Air Force, The Daily Beast warned that neither variant will "be able to fire its gun during operational missions until 2019." And the Navy's F-35C, which is scheduled to begin service in 2018?
That can't shoot either.
Ghosts in the machine
The Daily Beast says the problem is that the "3F" software that operates the gun on all three F-35 models won't be ready for combat before 2019. And without that software, the F-35 can't shoot.
After initially declining to comment, Air Force PR flaks fired back last week. While admitting that some problems have been found in the software, F-35 Joint Program Office spokesman Joe DellaVedova called The Daily Beast's allegations "nameless/sourceless/baseless" and insisted that the software will be delivered to test pilots by 2017. (To which The Daily Beast immediately countered that, even if test pilots have the software in 2017, combat pilots can't possibly get it before "late 2018 at the very earliest.")
As you can see, this is all starting to devolve into a game of "he said, she said." But take the Air Force's arguments at face value: Even an early 2017 date still leaves America's F-35 fighter jets flying around, gunless, for the next two years. That could pose a problem for American combat pilots, for troops on the ground, and for Lockheed Martin itself.
For pilots, the lack of a working gun means the F-35 is wholly reliant on its long-range air-to-air missiles to defend itself in the air, and defenseless in close combat. It also means that when the Air Force was arguing last year that the F-35 was "adequate" to provide close-air support (CAS) to U.S. ground troops, because it had a Gatling gun similar to that on the A-10 Thunderbolt -- the Air Force was wrong.
Even if the F-35's gun was as big as the A-10's (it isn't) and even if it carried an ammunition load as large as the A-10 does (it doesn't) ... the F-35 still couldn't possibly be "adequate" to the CAS task before 2017. (And maybe not until 2019).
What it means to investors
And this brings us to what all of the above means to investors in Lockheed Martin (NYSE:LMT). You see, here at The Motley Fool, we've been following developments in the F-35 program with a keen eye. But what we're really looking for is how these developments might affect investors' portfolios. With that view in mind, I see two problems for Lockheed Martin stock -- one near term and one longer term.
In the near term, the Air Force has been trying to retire the A-10 Thunderbolt for some years now -- arguing that the $300-odd million that it costs to keep 300-odd A-10 fighter jets flying for a year, would be better spent buying three new F-35s for the Air Force. Problem is, if the F-35 lacks a working gun, it really can't perform the A-10's mission. And that means that Congress almost certainly won't permit the Air Force to retire the A-10, freeing that money up to spend on Lockheed's warbirds -- at least not until Lockheed gets its gun working.
Longer term, continued problems with getting the F-35 combat-ready make it increasingly likely that the Pentagon will ultimately abandon the effort -- perhaps moving right along with development of its planned sixth-generation fighter jet.
That would be very bad news for Lockheed Martin, which would have no guarantee of winning a contract to build the gen-six aircraft. Recall that the F-35 program currently makes up about 17% of Lockheed Martin's revenue stream, generating roughly 7% operating profit margins for the company. Over the 60 year anticipated lifetime of the program, the F-35 is expected to generate upward of $1.3 trillion in revenues for Lockheed (including the costs of buying, maintaining, and servicing the plane) -- something on the order of $21.7 billion a year -- meaning it's eventually expected to account for nearly half of Lockheed's business.
Long story short, the F-35 program is continuing to take a lot of flak. If it goes down in flames, it's likely to take Lockheed Martin's stock down with it.