RTX Wins $112M Contract to Support F-35 Jet's Propulsion System

RTX Corp.'s RTX business segment, Pratt & Whitney, recently clinched a modification contract for the F-35 fighter jet's propulsion system. The award has been offered by the Naval Air Systems Command, Patuxent River, MD.

Details of the Deal

Valued at $111.9 million, the contract is projected to be completed by December 2026. Per the terms of the deal, RTX will offer continued technical engineering, flight test support, special tooling, test equipment repair, as well as flight test spare and repair parts for the F-35 Lightning II Propulsion System Block Four Flight Test Program.

The contract will serve the U.S. Navy, Marine Corps, Air Force and F-35 Cooperative Program Partners. Work related to this deal will be carried out in East Hartford, CT; Edwards Air Force Base, CA; and Patuxent River, MD.

What's Favoring RTX Stock?

As countries ramp up their defense purchases to strengthen their aerial combat readiness, the demand for fighter jets has surged over the past decade. Consequently, the demand for jet engines, particularly those powering advanced fighter jets, is also gaining traction.  

The F-35 fighter jet, built by the United States' largest defense contractor, Lockheed Martin LMT, plays a key role in many nations' air defense systems. Resultantly, RTX, through its Pratt & Whitney division, which manufactures the F135 engines for the F-35 aircraft, enjoys a steady influx of orders from the U.S. Army and international partners. The latest contract win is a bright example of that. 

Notably, LMT's F-35 program continues to enhance its market reach across the globe, which, in turn, sets the stage for RTX to win more contracts involving the production of the F135 engine and other associated spare parts. Evidently, in July 2024, the Greek government finalized its intention to procure 20 of Lockheed's F-35 Lightning II aircraft, with an option to obtain another 20. No doubt such orders confirm the integration of RTX-made engines and other related parts in these jets, which, in turn, boosts the company's revenue growth prospects.

Will RTX Stock Gain in the Future?

The U.S. government's current inventory target consists of 2,456 F-35 aircraft for the U.S. Air Force, Marine Corps and Navy. Moreover, as geopolitical tensions across the globe have prompted a larger number of nations to invest more in strengthening their defense capabilities, the prospects for F-35 outside the United States also remain bright. 

Notably, by the 2030s, more than 600 F-35s are anticipated to work together from more than 10 European countries. 

Such growth projections for the F-35 fleet across the globe should usher in more order flows for Pratt & Whitney, which, in turn, should provide a substantial boost to RTX's revenues.

Opportunities for RTX's Peers

Apart from Lockheed and RTX, defense majors that stand to benefit from the expanding F-35 fleet have been discussed below.

Northrop Grumman NOC: The company is part of the international partnership involved in building three variants of the F-35 jet. It is engaged in the design and production of the AN/ASQ-242 Communications, Navigation and Identification avionics suite, which can be dynamically programmed to arm the F-35 pilot with multiple-mission capabilities, engineered for seamless transition from one mission phase to the next.

Northrop boasts a (three-to-five years) long-term earnings growth rate of 8.7%. The consensus estimate for NOC's 2024 sales implies an improvement of 5.4% from the 2023 reported figure.

BAE Systems BAESY: This defense major's short takeoff and vertical landing experience, along with air systems sustainment, supports F-35's combat capabilities. The company provides an electronic warfare suite for F-35 that includes fully integrated radar warning (targeting support and self-protection) to detect and defeat surface and airborne threats.

BAE Systems boasts a long-term earnings growth rate of 12.4%. The Zacks Consensus Estimate for BAESY's 2024 sales implies an improvement of 36.3% from the 2023 reported figure.

Price Performance

In the past year, shares of RTX have rallied 57.6% compared with the industry's 3.5% growth.

Image Source: Zacks Investment Research

Zacks Rank

RTX currently has a Zacks Rank #3 (Hold).

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