Lockheed Martin ratings affirmed by Fitch with stable outlook

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Lockheed Martin credit rating affirmed

Highlights

Fitch affirms Lockheed Martin's Long-Term IDR and senior unsecured ratings at 'A' with Stable Outlook, citing a $186 billion order backlog and strong F-35 program visibility.
Lockheed's F-35 accounts for 25% of sales, with a $24.3 billion contract for 296 aircraft extending production backlog through August 2028, and delivery rates expected to reach 156 aircraft in 2026.
While U.S. and international defense spending trends support growth, $1.6 billion in 2025 reach-forward losses and fixed-price contract risks signal potential earnings volatility despite risk mitigation measures.

Rating rationale and contract visibility

As reported by Fitch Ratings, the agency affirms Lockheed Martin Corp.'s Long-Term Issuer Default Rating at 'A', its long-term senior unsecured notes and revolving credit facility at 'A', and its Short-Term IDR and commercial paper program at 'F1', with a Stable Outlook.

Fitch says the rating is supported by Lockheed's position as the world's largest defense contractor and its role as sole prime contractor on the F-35 Joint Strike Fighter. The agency points to a $186 billion order backlog at the end of the first quarter of 2026, equivalent to about twice annual revenue, as well as above-average margins relative to defense peers.

The F-35 remains the core of the company's credit profile, accounting for about 25% of annual sales and supporting a multidecade production and sustainment pipeline. Fitch says execution risk has moderated after the Technology Refresh-3 upgrade, which had previously delayed deliveries, and expects production and delivery rates to converge at about 156 aircraft in 2026. A $24.3 billion contract for lots 18 and 19 covering 296 aircraft provides production backlog through August 2028.

Fitch also says Lockheed's classified portfolio, facility infrastructure and research spending reinforce its strategic importance to the U.S. government. The agency notes roughly $2 billion of internal research and development investment in 2025, alongside substantial customer-funded development activity.

Defense spending trends support growth outlook

Fitch expects EBITDA leverage to remain around 2.0%, a level it views as consistent with the 'A' rating, with modest deleveraging over time driven by EBITDA growth rather than lower debt. The agency does not expect large debt-funded acquisitions to materially change that trajectory.

Demand across Lockheed's domestic portfolio remains supported by elevated U.S. defense appropriations and bipartisan backing for deterrence and missile spending, Fitch says. The company is also positioned to benefit from stronger activity in its Missiles and Fire Control segment, where framework agreements signed in the first quarter of 2026 cover PAC-3 Missile Segment Enhancement, THAAD and Precision Strike Missile programs, with targeted output increases across all three lines.

At the same time, Fitch flags ongoing risks from fixed-price contract execution, citing about $1.6 billion in reach-forward losses recorded across multiple programs in 2025. It says newer munitions agreements include risk-sharing features such as advance payments, inflation-indexed escalators and clawback protections, though legacy classified fixed-price programs still pose potential earnings volatility.

International sales, which account for about 25% to 30% of annual revenue, are positioned for above-trend growth as NATO members accelerate defense spending amid European rearmament. Fitch says that trend broadens Lockheed's market across F-35 deliveries, missiles and other foreign military sales programs, even if international demand remains structurally less predictable than demand from the U.S.

Our earlier report on the U.S. Senate passing the Fiscal Year 2026 National Defense Authorization Act (NDAA) outlined the bill’s bipartisan advance as a key annual step in setting defense priorities. We noted its focus on military readiness, national security, and service member welfare—signals of sustained congressional commitment that helps frame the demand environment for major defense programs and contractors.

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