Boeing Beats Lockheed Martin, and This F-47 Fighter Jet Contract Could Be Worth Hundreds of Billions

Well, this was certainly unexpected.

For more than a decade, the U.S. Pentagon has been mulling the idea of replacing its fifth-generation stealth fighter jets, and its F-22 Raptor in particular, with a new sixth generation of fighter jets designed for stealth, air superiority, and interoperability with unmanned drone aircraft assistants. Dubbed the Next Generation Air Dominance program, or NGAD, the new fighter would cost "several" hundred million dollars, or roughly twice the cost of the F-22.

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In fact, the Pentagon expected it would cost at least $16 billion just to complete the development of the new fighter before even buying the first plane (which would enter service sometime in the 2030s). The development of "loyal wingman" drones to fly in tandem with the new fighter would then cost even more to develop and build. In total, I was able to estimate a total cost of approximately $1.7 billion for each grouped unit of one NGAD and three drones.

Back in 2023, I predicted that the high cost of this program might be more than Congress could stomach -- the first big problem facing the NGAD program. And now we have a second problem:

President Trump just handed the contract to Boeing (NYSE: BA).

The President prefers Boeing

In each of the last two rounds of fighter jet upgrades, Lockheed Martin (NYSE: LMT) emerged victorious over Boeing in competitions to build the F-22 and the F-35, respectively. To date, Boeing hasn't won a single contract to build stealth fighters for the military, nor stealth bombers either. (Bomber contracts generally go to Northrop Grumman (NYSE: NOC)).

Boeing has even had difficulties with manufacturing non-stealth aircraft -- and non-military aircraft, too -- as the never-ending string of troubles with its 787, the 737 MAX, and 777X civilian airliner programs demonstrate. And yet, despite its history, last week President Trump announced from the Oval Office that Boeing had been awarded a $20 billion contract to build NGAD.

He's calling the new Boeing plane the F-47.

Whatever the new F-47 looks like, it probably doesn't look like these fighter jets. Image source: Getty Images.

Introducing the Boeing F-47 stealth fighter jet

Little is known about the new F-47, which lacks so much as a dedicated webpage on Boeing's website (or even a photo), despite the fact it's apparently been up and running and conducting test flights for the past five years. To date, all Boeing has been willing to reveal is that the new plane "brings leap-ahead capability in range, survivability, lethality, and adaptability."

Worse news for investors: We don't even have confirmation of what the plane will cost.

The Wall Street Journal reports that Boeing has already spent $2 billion preparing to build the F-47 and that completing development "could top $50 billion." Other sources say Boeing's initial development contract is worth $20 billion and confirm that the contract is of the "cost-plus" variety rather than fixed-cost, guaranteeing Boeing some amount of profit on top of whatever it spends to develop the plane.

For a company that has been losing money steadily for the last six years straight (according to data from S&P Global Market Intelligence), and specifically a Boeing Defense division that's been losing money for the last three years, this probably sounds like good news to Boeing investors. However, it does run against the grain of a Pentagon that's been shifting to favor fixed-price contracts in recent years. This may not be great news for Boeing in the long term, as it will encourage cost overruns that could derail the F-47 program.

Image source: Getty Images.

What happens next?

Although predicted in the past to enter service sometime in the 2030s, the Journal reports that the first F-47s could actually enter service before President Trump leaves office, so perhaps as early as 2029. Private defense companies General Atomics and Anduril are already hard at work developing loyal wingman drones to fly alongside the F-47.

If correct, this would give a relatively near-term lift to Boeing and accelerate the company's return to profitability. At last report, most analysts were forecasting a return to positive generally accepted accounting principles (GAAP) profits for Boeing later this year and positive free cash flow (FCF) in 2026 -- then rising toward $7 billion in annual profit and $9 billion in annual FCF by 2029. An influx of F-47 cash, however, first from the development funding and, within a few years, from purchases of actual planes by the Air Force, could accelerate Boeing's turnaround significantly.

Whether this is how things play out in practice remains to be seen. But already today, I'm ready to make at least one prediction for Boeing. Last year, I predicted that under the leadership of new CEO Kelly Ortberg, Boeing would sell its money-losing Boeing Defense & Space, or BDS business, and use the money to try and fix the company's equally troubled commercial airliners business. But now the facts have changed, -- so I'm changing my opinion: Now that it's won the F-47 fighter contract, Boeing will not, in fact, sell BDS.

Or at least not the "Defense" part.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.