Over the course of 60 years, Lockheed Martin (NYSE: LMT) 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.
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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.
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?
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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 (NYSE: BA) 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.
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