China’s 6th-Gen Fighter Jets Trigger Lockheed Martin Stock, Rating Downgrade

(DEFENCE SECURITY ASIA) – The stock and rating of United States’ largest defense contractor, Lockheed Martin, has been downgraded from “buy” to “hold” by Deutsche Bank, with its share price target reduced from $611 ( (RM2,740) to $523 ((RM2,353).

According to media reports, this downgrade comes in the wake of China’s unveiling of its sixth-generation fighter jets just days ago.

A Deutsche Bank analyst Scott Deuschle cited “China’s efforts to modernize its combat aerospace sector” as the primary reason for Lockheed Martin’s stock and rating adjustment, which followed days after China released videos and images showcasing the flights of two sixth-generation fighters.

“We have downgraded Lockheed Martin to ‘hold’ from ‘buy’ as our earlier assumptions no longer appear convincing, and we have heightened concerns over the long-term support for the F-35 fighter jet (developed by Lockheed) in light of China’s advancements,” the Deutsche Bank analyst explained.

“We’re struggling to find a compelling upside case on estimates,” wrote Deuschle.

That means slower earnings growth. What is more, he said he sees “the reveal of further advancements in combat aircraft capabilities by China as potentially undermining long-term [Department of Defense] demand for the F-35 aircraft.”

 

The analyst further noted that “China’s increased modernization efforts in combat capabilities could potentially affect the Pentagon’s long-term demand for the F-35.”

China unveiled footage and images of the maiden flights of two sixth-generation fighters on December 26.

Currently, both China and the U.S. operate two fifth-generation fighters – China’s J-20 and J-35, and the U.S.’s F-22 and F-35.

With expectations that China will begin mass-producing sixth-generation fighters well ahead of the U.S., potentially before the end of the decade, there is speculation that Washington may reduce funding for the F-35 program and redirect resources to accelerate the development of its own sixth-generation fighter jets.

According to analysts, Lockheed Martin’s F-35 is perceived to be at a disadvantage compared to China’s fifth-generation J-20 fighter, particularly in avionics, composite materials, and stealth coatings.

Additionally, the J-20 “Mighty Dragon” boasts superior operational range, better flight characteristics, supersonic cruise capabilities, greater payload capacity, and a more advanced radar system compared to the F-35.

 

In response to the J-20’s growing capabilities, the U.S. and Lockheed Martin have been enhancing the F-35 with upgrades, including the AN/APG-85 radar, AIM-260 air-to-air missiles, and improved electronic warfare suites.

Recently, two Chinese sixth-generation fighters – the J-36 and J-50 – reportedly completed their maiden flights, as disclosed by aerospace industry observers through social media posts.

The J-36 is believed to have been developed by Chengdu Aircraft Corporation (CAC), while the J-50 was reportedly built by Shenyang Aircraft Corporation (SAC).

The maiden flights of these two fighters mark a symbolic victory for Beijing in the ongoing race to develop sixth-generation fighters, a competition that pits China against the U.S., Russia, and Europe.

Social media posts reporting the flights suggest that China’s sixth-generation fighters may feature three engines, unlike the two-engine designs currently pursued by other nations.

Videos circulating online show two engines mounted beneath the aircraft’s wings, while a third is positioned in the aircraft’s fuselage.

This three-engine design is unprecedented and represents a significant departure from previous fighter jet designs, signaling a shift in China’s approach to fighter development rather than simply replicating American designs.

The Chinese sixth-generation fighter reportedly conducted its test flight with its landing gear extended, a standard practice during initial test flights.

In an October 2009 article for Air and Space Forces Magazine, John Tirpak described sixth-generation fighters as advanced combat aircraft emphasizing extreme stealth, adaptability, and technological integration.

According to Tirpak, sixth-generation fighters will incorporate features such as morphing airframes, directed energy weapons, and “smart skins” embedded with sensors for unparalleled situational awareness. — DSA