What happened
Shares of defense contracting giant and all-around heavy industrialist General Electric (NYSE: GE) gained 2.1% through 1 p.m. ET on Wednesday -- and Bank of America may be the reason.
As analyst-watcher The Fly reported yesterday, a new report out of BofA highlights the potential for General Electric to benefit from a new Pentagon contest to build a better engine for its F-35 fighter jets. GE would be in the running for such a contract -- and could reap rich rewards if it wins.
So what
Currently, Lockheed Martin F-35s are built with F135 engines from Raytheon Technologies. Problem is, as time has progressed these engines have been shown to suffer in the salt water environments surrounding short take-off, vertical landing (STOVL) F-35Bs and carrier-variant F-35Cs. Now the Pentagon may be looking to "re-engine" these specific flavors of F-35, says Bank of America.
Raytheon is already working on an upgrade of its engine, but General Electric is also designing a new XA100 engine for this purpose.
Now what
How big of an opportunity might this be for General Electric? According to the 2023 World Air Forces Report by FlightGlobal, there are already more than 150 F-35B and F-35C variant aircraft in service with the American, Italian, and British militaries around the globe. And more than 400 more such aircraft are on order, all of which could potentially end up being re-engined to increase their durability and reduce their operating cost.
Furthermore, Lockheed Martin is currently building new F-35s (of all variants) at the rate of more than 150 planes per year, and investors can expect production to continue for literal decades -- because across all air forces around the world, there's the potential for more than 5,000 F-35s to eventually be produced. At a cost of approximately $10 million (or more) per engine, that works out to a $50 billion revenue opportunity over the lifetime of this program.
Even the potential for General Electric to win a piece of that market should be good for a couple-percentage-points gain in GE stock.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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