Fitch assigns ’A’ rating to Lockheed Martin’s senior notes

Investing.com -- Fitch Ratings has assigned an ’A’ rating to Lockheed Martin Corporation (NYSE:LMT)’s proposed senior unsecured notes offerings, the credit rating agency announced Wednesday.

The new notes will rank equally with all of Lockheed Martin’s other senior unsecured debt. The company plans to use the net proceeds for general corporate purposes, including repayment of upcoming unsecured debt maturities.

Fitch currently maintains an ’A’ rating for Lockheed Martin’s Long-Term Issuer Default Rating and unsecured debt, with a Stable outlook. The company’s Short-Term IDR and commercial paper program are rated ’F1’.

The rating agency cited Lockheed Martin’s position as lead contractor on the F-35 Joint Strike Fighter program as a key factor supporting its credit profile. The program is expected to produce over 2,500 aircraft for U.S. and international customers, with a sustainment pipeline that will last several decades.

The F-35 program experienced delivery delays due to the new Technology Refresh-3 upgrade, which supports modernized capabilities including improved sensors and electronic warfare features. Deliveries incorporating these upgrades began in the second half of 2024. Fitch believes the successful implementation of TR-3 will stabilize aircraft production and improve long-term visibility.

The U.S. Department of Defense has approved over $30 billion in procurement funding for F-35 production lots 15 through 17. Negotiations for lots 18 through 20 are ongoing, with long-term agreements for lots 18 and 19 expected in the third quarter of 2025.

Fitch expects Lockheed Martin to deliver between 170 and 190 F-35 aircraft in 2025, with 30%-40% going to international customers. Management anticipates deliveries to exceed production over the next few years as the company delivers both parked and newly produced aircraft.

The rating agency forecasts Lockheed Martin will maintain EBITDA leverage around or below 2.0x over the next several years by growing EBITDA while refinancing upcoming maturities. Fitch projects annual FFO margins and cash flow from operations minus capital expenditures to debt ratio to stay around or above 10% and 30%, respectively.

Lockheed Martin’s strategic position as the largest global defense company and its innovative technology also support its ratings. The company holds strong positions in aeronautics, space, missiles, mission systems and vertical lift, with a diversified backlog of $166.5 billion, representing over twice its annual revenue.

Fitch expects higher U.S. defense spending to benefit Lockheed Martin over the next two to four years, driven by increased geopolitical tensions and bipartisan support. The company generates 25%-30% of its annual revenue from international customers, which could grow as it increases international F-35 deliveries.

In its peer analysis, Fitch noted that Lockheed Martin is larger than ’BBB’ range peers Northrop Grumman (NYSE:NOC), L3Harris Technologies (NYSE:LHX), and BAE Systems (LON:BAES), and is rated two notches above Northrop Grumman due to stronger credit metrics.

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