The decision by Germany to procure 35 F-35A Lightning II fighter jets—formally announced in 2022 with deliveries expected by 2026—has become a flashpoint in transatlantic geopolitics. While the move strengthens Germany’s military modernization, it also underscores a growing rift between France and Germany over defense autonomy and supply chain strategies. For U.S. defense contractors like Lockheed Martin, this presents a critical opportunity to capitalize on European demand, even as geopolitical tensions and lingering trade policy risks loom large.

Geopolitical Tensions Fuel U.S. Defense Demand

Germany’s F-35 purchase is as much a strategic move as a political one. The jets will replace its aging Panavia Tornado fleet, which is slated for retirement by 2030, and fulfill its nuclear-sharing obligations under NATO. However, the decision has strained Franco-German defense ties. France, which champions European self-reliance, has long pushed alternatives like the Dassault Rafale and the Future Combat Air System (FCAS)—a Franco-German-Spanish project—to reduce dependency on U.S. technology. Germany’s choice of the F-35, however, prioritizes interoperability with NATO allies and immediate capability gaps over long-term industrial sovereignty.

This divergence creates a clear advantage for U.S. contractors. Lockheed Martin, the prime contractor for the F-35 program, stands to benefit from Germany’s order—and potentially future expansions—as other NATO members like Poland and Sweden also eye the aircraft. The F-35 supply chain, which spans over 1,500 suppliers in 25 countries, includes key U.S. players like Raytheon Technologies (missiles) and Northrop Grumman (avionics).

Supply Chain Resilience Amid Tariff Headwinds

The F-35’s global supply chain, however, faces headwinds from lingering Trump-era tariffs and geopolitical uncertainty. The U.S. tariffs on EU imports, though partially resolved in recent trade agreements, have created lasting friction. For instance, European suppliers of F-35 components—such as Terma (Denmark) for electronic pods or BAE Systems (UK) for lift systems—now operate under a cloud of potential retaliatory measures.

Yet U.S. firms are adapting. Lockheed Martin has shifted some production to domestic facilities to mitigate tariffs, while also diversifying suppliers to reduce single-point risks. This resilience is critical: the F-35 program’s success depends on maintaining cost efficiency and delivery timelines despite external pressures.

Bipartisan Support as a Safety Net

One key tailwind for U.S. defense contractors is the bipartisan consensus on defense spending in Washington. Despite partisan divides, Congress has prioritized military modernization, with the FY2025 defense budget reaching $847 billion. This stability ensures steady demand for contractors like Lockheed, which derives roughly 30% of its revenue from F-35 production.

Moreover, fears of China’s military rise and Russia’s aggression in Ukraine have only intensified the urgency for advanced systems like the F-35. Even critics of U.S. foreign policy acknowledge that Europe’s reliance on American defense tech is unlikely to wane anytime soon.

Investment Risks: Geopolitical Whiplash and Tariff Fallout

The risks, however, are significant. The F-35’s reliance on U.S. software and logistics creates a geopolitical dependency trap: if U.S.-European relations sour, Washington could restrict updates or spare parts. This risk is already visible in Germany’s debate over operational sovereignty, with critics warning of potential “kill switches” or data surveillance.

Domestically, U.S. contractors face inflationary pressures. While Lockheed has managed to reduce per-unit F-35 costs to $85 million (down from $118 million in 2015), rising labor and material costs—exacerbated by tariffs on critical minerals like rare earth elements (REEs)—threaten margins.

Investment Thesis: Ride the Fighter Jet Wave—With Caution

For investors, U.S. defense contractors offer a compelling mix of growth and geopolitical tailwinds:
1. Lockheed Martin (LMT) remains the primary beneficiary of F-35 demand. Its diversified portfolio (missiles, satellites, hypersonics) and $100 billion backlog provide stability.
2. Raytheon Technologies (RTX), a supplier of AMBER missiles and radar systems, benefits from the F-35’s combat roles in contested airspace.
3. Northrop Grumman (NOC), with its role in avionics and cybersecurity, is critical to the jet’s digital architecture.

Risks to watch:
– A slowdown in NATO orders due to cost concerns or political pushback (e.g., Portugal’s shift to the Rafale).
– Supply chain bottlenecks from U.S.-China trade tensions or labor shortages.
– A sudden pivot toward European self-reliance if Franco-German tensions escalate.

Conclusion

Germany’s F-35 gamble reflects a broader truth: in an era of geopolitical fragmentation, the U.S. remains the guarantor of NATO’s airpower. While risks like supply chain vulnerabilities and political dependency loom, the long-term demand for fifth-generation fighters—and the resilience of U.S. defense giants—positions firms like Lockheed Martin to soar. Investors should prioritize companies with diversified revenue streams and supply chain agility, while keeping a wary eye on transatlantic diplomacy.

Invest wisely—the skies are competitive, but the payoff could be stratospheric.