Lockheed’s F-35 Under Fire: Budget Cuts & Ballooning Costs

Taking a Look at Lockheed Martin's (LMT) F-35 Program.

Jun 13, 2025

Within our coverage ecosystem, there hasn’t been many developments this week…. unless you are Lockheed Martin (LMT). This week we took a look at the turbulence around LMT’s flagship F-35 fighter program. LMT shares slid nearly 6% after news that the Pentagon’s latest budget proposal could halve the Air Force’s F-35 orders for 2026. Meanwhile, north of the border, Canada confirmed it’s sticking with the F-35 — but a new audit revealed the price tag for its 88 jets has blown up by almost 50% (to about $20B USD), with delays pushing full deployment out to 2031. These two developments highlight the challenges & debates swirling around the world’s most expensive weapons program. Below we will give a quick rundown (with deeper analysis reserved for our premium subscribers at Pierce Capital Research).

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Canada’s F-35 Deal: Sticker Shock, But Commitment Intact

Canada’s plan to buy 88 F-35 fighters is turning out far pricier than expected, though the deal remains on track. Key highlights from the update:

Ballooning Cost: An Auditor General report found the program will cost C$27.7B ($20B USD) — roughly 50% higher than initial estimates. The overruns come from add-ons needed to make the jets fully operational (advanced weapons, upgraded infrastructure) & pandemic-era inflation that wasn’t factored into older estimates.
Delays in Deployment: Infrastructure projects for the F-35 bases are behind schedule. Permanent hangars & training facilities won’t be ready until 2031, meaning the Royal Canadian Air Force will rely on temporary setups when the first F-35s arrive (expected around 2028). A fighter pilot shortage in Canada is another hiccup, potentially affecting readiness.
Still Moving Forward: Despite the cost spike & a defense spending review by Canada’s government, there’s no sign of backing out. Officials note many NATO allies saw similar F-35 cost growth. The commitment shows that Canada views the F-35 as essential for its future fighter fleet. For LMT, Canada’s order remains a substantial long-term contract — now potentially larger in value, albeit with revenue spread over a longer timeline due to the delays.

Why this matters: Canada’s steadfast commitment (even at a higher cost) is a relief for LMT, cementing a decade-long revenue stream. The budget increase could mean a bit more money for LMT (covering added weapons/support), though much of those overruns go toward infrastructure that doesn’t directly boost LMT’s sales. The delays might push some deliveries & payments further out, but ultimately Canada’s 88 jets will keep LMT’s production lines busy & highlight the F-35’s continued international demand.

U.S. F-35 Orders: Budget Cuts Looming

In the U.S., the F-35 program faces a potential near-term slowdown. The Pentagon’s FY2026 budget proposal, unveiled this week, delivered an unwelcome surprise for LMT:

Halved Order in 2026: The U.S. Air Force requested only 24 F-35As for FY2026 50% fewer than the 48 jets it had planned to buy. The Navy & Marine Corps also trimmed their asks (to 12 & 11 F-35s, respectively). These cuts align with a directive to reduce defense spending by 8% over five years & indicate a belt-tightening that even the F-35 program isn’t immune to.
Criticism & Debate: The F-35’s price tag (an estimated $2T total lifecycle cost) & recurring technical issues have drawn fire. High-profile figures like Elon Musk have said in the past that manned fighter jets such as the F-35 are becoming “obsolete” in the drone era, while other politicians have blasted the program as “dysfunctional” & wasteful. This skepticism is adding pressure on the Pentagon to justify the F-35’s costs & actually consider unmanned systems as an alternative path.
Not Final Yet: Importantly, the budget proposal isn’t set in stone. This is a proposal. U.S. Congress will review it, & Lockheed Martin has historically benefitted from the support on Capitol Hill. It wouldn’t be surprising to see lawmakers push those F-35 numbers back up before final appropriations. The Pentagon’s move, however, sends a message that even strong programs like the F-35 are under scrutiny. Investors should watch the congressional debate closely — any sustained slowdown in F-35 purchases could slow LMT’s growth in coming years, even if the overall program remains intact.

Why this matters: The U.S. is by far the F-35’s largest customer, so a cut or stretch-out in American orders could ripple through LMT’s outlook. Fewer jets in the near term might mean slightly lower revenues for Lockheed’s Aeronautics segment in the late 2020s. That said, we suspect any “lost” orders now may just be deferred rather than canceled — especially given geopolitical tensions & the F-35’s central role in U.S. & allied defense strategy. In short, the F-35 isn’t going away, but this budget drama is a reminder that even top-tier defense programs face political & fiscal headwinds. (In our premium report, we dive into whether these developments warrant changes to our LMT valuation model, or if they simply amount to timing adjustments. We also discuss what to watch next — from congressional negotiations to international F-35 sales — to gauge LMT’s trajectory.)

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