F-35: Cruising at A Higher Altitude

There are five primary reasons behind the fighter segment’s remarkable growth, which are not mutually exclusive:

Lockheed Martin’s F-35 is the biggest single market driver, with the long-awaited production ramp finally seeing results. Last year saw deliveries jump to 142 aircraft. We expected growth to continue through the decade, but Lockheed Martin mysteriously announced in 2021 that output would be capped at 156 per year, which is less than what the market seems to want. The company had previously said that the line can reach 180 deliveries with planned facilities. We anticipated that the 156 cap was imposed by the government as a negotiating lever and would not long endure beyond agreement on production lots 15-17. But recent Department of Defense documentation seems to indicate that the production cap will remain constant through 2030, even as the limiting factor – subcontractor throughput – is being alleviated. Even so, the F-35 will continue to be the dominant force in the fighter market through the forecast period.

The second driver is high levels of defense spending, with associated levels of equipment utilization. This growth fuels procurement of new military aircraft, and of course it reflects the higher utilization of the existing fleet in areas of conflict and tension. This higher utilization also drives replacement demand, to include backfilling aircraft potentially sent to and/or lost in Ukraine.

Aging fleets are the third driver. The average age of the world’s combat aircraft fleets ranges between 25 and 30 years. This problem is fairly evenly spread – there are no world regions where the average age is not at least 25 years. Couple this with high levels of utilization, and a simple set of choices emerge: countries can either buy more jets, spend more on upgrades and life extension programs, or they can rely less on air power. Again, nothing about world events implies that anyone will choose the third option.

Japan is a good illustration of this. The country increased its planned F-35 buy from 42 to 147 aircraft. Yet it still doesn’t have a plan to replace many of its 200 F-15s and 100 F-2s; its participation in the Tempest program may eventually lead to such a plan.

The fourth factor is Double- (and even Triple-) Sourcing. Geopolitics plays a strong role in fighter purchase decisions. When a country buys a fighter, it also buys a strategic relationship. Increasingly, customer countries are seeking multiple such relationships, perhaps to hedge against the risk of arms cutoffs by having multiple suppliers.

Thus, in recent years, Egypt has broken its three-decade streak of US fighter reliance by sourcing Rafales from France and MiGs from Russia. Remarkably, tiny Qatar has become the first export fighter customer to order three twin engine heavy models (F-15s, Typhoons, Rafales) at the same time.

Finally, Emerging (and re-emerging) Producers are contributing to market growth. Fighter design and manufacturing sovereignty is coming back into vogue as an aspiration. Korea’s KF-21 will see prototype deliveries in the next few years. Turkey is moving forward with its TF-X. Taiwan’s AIDC has resumed production of the Ching Kuo fighter, as a fast trainer variant.

These five factors, and other smaller factors, will continue to drive the fighter market upward through 2028, at least. There are very few signs that the world will become a more peaceful place, and predictions of crewed platforms becoming obsolete have become embarrassingly premature.