Is Lockheed Martin Corporation (LMT) About to Take a Giant Hit?

If there’s one thing a company doesn’t want to be known for, it’s failure. Arguably, next in line to failure would be asininely expensive. Unfortunately for Lockheed Martin Corporation (NYSE:LMT), the F-35 has a reputation for both. And at a time when defense spending cuts are hurting domestic spending, overseas spending is of paramount importance. But for the F-35, overseas customers are backing away — quickly. So what does this mean for Lockheed’s stock?

Source: USAF via Wikimedia Commons.

I’m sorry, how much?!
When Lockheed Martin Corporation (NYSE:LMT) first started the F-35 program, it promised the fighter would cost less to operate than the F-16. Well, almost $400 billion later, a decade overdue, and still not working properly, preliminary estimates for the F-35A put the operating cost as 10% more expensive than the F-16, or $24,000 per flying hour.

Even worse? According to the Pentagon’s Cost Analysis and Program Evaluation office, the F-35 will cost $18.2 billion annually, and over its useful life is expected to cost $1.5 trillion. Not surprisingly, overseas purchasers like the Netherlands, Canada, Italy, Australia, and Turkey, have all expressed concern over spiraling costs and delays and have threatened to reconsider purchases. Australia went so far as to say that if there were more delays, it would buy 24 The Boeing Company (NYSE:BA) Super Hornets instead. Furthermore, Denmark has asked for submissions of possible F-35 alternatives like the Super Hornet, and the Eurofighter Typhoon developed by BAE Systems PLC (ADR) (OTCBB:BAESY) Systems , European Aeronautic Defense and Space, and Finmeccanica SpA (BIT:FNC).

Competition’s revving up
As if the above isn’t enough bad news for Lockheed Martin Corporation (NYSE:LMT), competition is heating up in the fighter-sphere. Russia’s Sukhoi Su-35, while not a fifth-generation plane, has a pretty decent reputation for low fuel consumption and handling capabilities. And it works — something the F-35 can’t yet claim. Plus, the Su-35 just got beefed up with cutting-edge avionics, and now Russia is pushing it as a dependable alternative to troubled F-35.

Moreover, if the F-35 doesn’t pick up the pace, it will face even more competition on the horizon as two new fifth-generation planes, the Chinese J-20 and the Russian Sukhoi T-50 PAK FA, are making their way to production. The J-20 is moving at such a fast pace that while it wasn’t expected till 2017-2019 according to the People’s Liberation Army Air Force, it’s now likely that date will move up.