Is Lockheed Martin Doomed?

For Lockheed Martin (NYSE: LMT) shareholders, Admiral Mullen's prediction sounded a joyous yawp of confidence back in May. If manned fighter jets truly are on their way out, then Lockheed occupies the catbird's seat. It controls the last big fighter jet program ever. It's looking to oversee $1 trillion (or more) in total costs over the next 60 years, and it need never again compete with Boeing (NYSE: BA) to build the next blockbuster.

Or not

Pundits in Washington did their
best to dump cold water on that optimism this week. Arguing that the
"JSF" (Lockheed's F-35 Lightning) program is too expensive, they
suggested that we don't really need 2,000-plus fighter jets.
But don't worry, Fools. Their arguments have more holes in 'em than a
glider flying out of an ack-ack storm. A Reuters article published Wednesday laid out the arguments against the program.

Fighters? Bombers? What-ever!

"Rather
than buying both new long-range bombers and thousands of short-range
F-35 fighters, DoD might consider whether the new bombers ... could
represent a cost-effective substitute for some number of these new
fighters."

So argues the "Center for Strategic and Budgetary Assessments" (CSBA) -- and it's an argument I disagree with.

Substitute bombers for fighters? That's like trying to substitute
sheep for sheep dogs. Bombers, by definition, bomb stuff -- period.
While bombers provide larger payload capacity than the F-35, part of
the rationale for calling them cost-effective, they are also less
flexible in their use and have a higher price tag per plane. Fighters
like the F-35, in contrast, do a whole lot more. They kill the other
guy's bombers. They keep the other guy's fighters from killing our
bombers. And, time and targets permitting, they do some bombing of
their own. But fighters and bombers are not interchangeable. The idea
of substituting one for the other is ridiculous.

Um, seriously folks. Who is flying this thing?

"[Building
unmanned aerial vehicles instead of fighter jets] "could enable a
radically different force structure that achieves the same level of
effectiveness at a much lower cost."

Yeah -- but you get what you pay for, folks. I agree that UAVs are the way of the future. Textron (NYSE: TXT), General Dynamics (NYSE: GD), Northrop Grumman (NYSE: NOC), and L-3 Communications (NYSE: LLL) aren't sinking hundreds of millions of dollars into researching and building the gizmos for the heck of it. UAVs will eventually become so robust that they'll be able to replace manned fighter jets for certain tasks.

But until someone builds a UAV capable of going mano-a-mano with a MiG
-- and winning -- you simply cannot afford to remove manned fighter
jets from the U.S. arsenal. Right now, any contest between a real
fighter and a UAV is no contest at all -- it's handing air supremacy to
the bad guys.

No cake for you -- I'll eat it

"In
the coming years, pressure will likely continue to grow for DoD to
scale back its plans, including both major modernization efforts and
force structure plans."

Granted. And in fact, the budget hawks succeeded in scaling back
plans for building out the U.S. Air Force. Just last month, the threat of an Obama veto frightened both the Senate into cutting funding for Lockheed's F-22 Raptor, and eliminating a backup F-35 engine that General Electric (NYSE: GE) was building.

But to refute the CSBA, the same people who had the F-22's funds
pulled defended their action by arguing the money was needed elsewhere
-- in particular, to fund accelerated F-35 production. Now, I can
understand the logic of cutting funding for a $140 million fighter jet
(the F-22) in order to build more F-35s, budgeted at as little as $80 million apiece. That's practically "buy one, get one free."

But CSBA's argument boils down to a bait and switch -- the exact
opposite of the old "have your cake and eat it too" transaction. First
they take away Lockheed's F-22s in exchange for more F-35s. Then,
having succeeded, CSBA tries to take away the F-35s too. That's not
just unfair -- it's downright dangerous to national security.

Foolish takeway

Now, I don't want to leave you with the impression that the CSBA's arguments are entirely
disingenuous. UAVs are in fact a good, cost-effective way to kill bad
guys who live in caves, have no air force, and can't shoot back.

Problem is, not all threats and international flashpoints are like
that. A second group of countries have long-range missiles, and lob
them in the general direction of Japan and Hawaii. Others have an army that threatens Taiwan, are intent on stealing our own fighter jet designs, and occasionally try to crash the Internet. Still other countries parade their growing arsenals through Red Square, float nuclear submarines off the East Coast, and invade the occasional democratic nuisance on their border. Oh, and they also have advanced air defense systems and fighter jets of their own.

While I'm all for building weapons systems tailored to defeating the first group of bad guys, I'm 100% against stripping the Pentagon of the tools it needs to defend ourselves against the second group.

Time to chime in

But enough about me. What do you think about the CSBA's recommendations? Can the U.S. afford
the 2000-plus F-35's for its Air Force? Can we trust North Korea,
China, and Russia to play nice if we don't have one? The floor is open
for comments -- scroll down, and post away.

© 2009 UCLICK L.L.C.