Lockheed Martin stock has backed off slightly from all time highs reached at the beginning of July 2019. It can be attributed to Lockheed Martin (NYSE: LMT) losing a $9 billion dollar contract to supply NATO member Turkey with 100 F-35 jets into over the life of the purchase agreement. The US government expelled Turkey from the F-35 program because of their decision to purchase Russian made S-400 ground to air missile defense systems. US officials have stated the S-400 in close proximity to F-35 jets in Turkey would be detrimental to the overall security of the program, as it is believed the S-400 could transmit data to Russia helping make the F-35’s stealth obsolete.
Turkey’s decision to purchase the S-400 missile system was driven by cost and US reluctance to put advanced Patriot missile defenses in Turkey as their government has become radicalized under President Erdogan, while the Turkish government has been seeking alternative support from the Kremlin. NATO’s reliance on Turkey isn’t as important as back in the cold war, when the US sought forward military bases capable of delivering a nuclear payload to Soviet Russia.
The program had integrated Turkey into the supply chain as a secondary provider of Fuselages and canopies. The US supply chain is the primary provider of components, whereas NATO and countries participating in the development of the F-35 received contract awards for a certain percentage of components based on their commitment to the program.
The F-35 derives its 5th generation design advantages from its advanced stealth coating and ability to act as a communication beacon for surrounding air assets. It has a smaller wingspan than the F-22, but its stealth capabilities allow the jet to better enter enemy airspace without detection over its predecessor.
Overall, the defense sector has benefited from the department of defense budget expansion north of $700 billion dollars. The Pentagon is flush with cash and they have focused spending on emerging technologies for the B-21 stealth fighter, F-35 full production and soon to be announced “GBSD” ground based strategic deterrent missile program capable of delivering a nuclear payload from a ballistic missile. Lockheed isn’t super reliant on Turkey’s F-35 purchase as $9 billion is a fraction of the estimated $1 trillion lifetime cost for production and sustainment of the F-35 program.