Despite the ongoing Russia-Ukraine conflict, it seems that some defense contractors might get drastic cuts to their existing contracts. That’s exactly what might happen with Lockheed Martin (NYSE: LMT). The aviation giant announced that the Pentagon would be drastically dialling back an existing contract for F-35 jets.
Originally, the U.S. Defense Department planned to buy 94 new F-35 fighter jets in fiscal 2023, an increase from the 85 originally anticipated in this year’s subject. However, according to the most recent version of the budget report, the Pentagon is cutting its F-35 orders by 33, news which led to a selloff in Lockheed Martin stock.
For some investors, it was a surprising announcement from the American military. Currently, the F-35 is being deployed in Eastern Europe as a response to the Russia-Ukraine conflict. One reason for this delay could include waiting for F-35s to be outfitted with new capabilities and minimizing any retrofitting related expenditures.
Germany also announced it would be buying an additional 35 planes to show up its air force. The full explanation for why America’s cutting back on this popular fighter jet won’t be made public until much later, but some speculate Germany’s purchase might be connected in some way to America’s decision to dial back.
“It is premature to speculate about the proposed defense budget prior to its release,” said Lockheed Martin in a statement on Thursday, reminding shareholders the budget’s far from finalized. “The F-35 is the most lethal, survivable and connected fight in the world today, and is strengthening our allies, deterring our enemies, and bolstering our economy.”
In contrast, the Pentagon announced it plans to expand its Boeing F-15 fleet, buying 24 as opposed to the originally intended 14 fighter craft. President Biden is expected to request the highest Pentagon budget in American history for the 2023 fiscal year, which some sources are saying he’ll ask for over $770 billion in funding.
Shares of Lockheed Martin were down around 6.5% following the news, although shares are recovering a bit in pre-market trading. Like most defense contractors, Lockheed has seen its stock price jump more than 15% since the war in Ukraine took off. While shares could keep rising as geopolitical tensions remain high, most experts wonder just how much longer the conflict will last at this point. Major Ukrainian cities are still holding out, although supplies seem to be running out.
Prior to this news update, Lockheed Martin announced it planned to invest over $1 billion in manufacturing facilities in Saudi Arabia. Additionally, the company also made news after rejecting a $4.4 billion buyout proposal for Aerojet Rocketdyne, a promising rocket maker.
Lockheed Martin Company Profile
Lockheed Martin is the largest defense contractor globally and has dominated the Western market for high-end fighter aircraft since the F-35 program was awarded in 2001. Lockheed’s largest segment is Aeronautics, which is dominated by the massive F-35 program. Lockheed’s remaining segments are rotary & mission systems, which is mainly the Sikorsky helicopter business; missiles and fire control, which creates missiles and missile defense systems; and space systems, which produces satellites and receives equity income from the United Launch Alliance joint venture. – Warrior Trading News
