Lockheed Martin and BAE Systems have formed a strategic partnership for uncrewed autonomous air systems, positioning for growth in defense technology, while Lockheed Martin simultaneously faces a significant shareholder class action lawsuit alleging securities fraud.

Defense Giants Forge Alliance in Autonomous Air Systems

Lockheed Martin (LMT) and BAE Systems (BAESY), two prominent players in the global defense industry, have announced a strategic partnership aimed at advancing the development of uncrewed autonomous air systems. Revealed at the DSEI global defense conference in London, this collaboration merges the expertise of Lockheed Martin's Skunk Works and BAE Systems' FalconWorks research divisions.

The initiative is designed to create modular aircraft capable of rapid deployment across various mission types, with an initial focus on electronic warfare and attack platforms. These systems are envisioned to enhance the survivability of existing crewed combat aircraft and offer flexibility for launch from diverse platforms, including air, ground, maritime vessels, and wide-body transport aircraft. The partnership aligns with a growing trend among global militaries to integrate hybrid fleets, comprising both manned and unmanned assets, to optimize combat capacity and cost management.

Lockheed Martin Confronts Shareholder Class Action Lawsuit

Concurrently with the strategic partnership announcement, Lockheed Martin is grappling with a significant shareholder class action lawsuit, Khan v. ... Corporation (25-cv-06197), alleging securities fraud. The lawsuit contends that the company and its executives misrepresented risks in its risk-adjusted contracts and overstated its capacity to meet commitments regarding cost, quality, and schedule. These allegations specifically highlight perceived material weaknesses in internal controls within Lockheed Martin's Aeronautics and Missiles and Fire Control segments.

The lawsuit indicates that these issues have contributed to a more than 25% decline in Lockheed Martin's stock price during 2024–2025. Notably, an $80 million loss on a classified program in October 2024 resulted in a 6.12% stock drop. Further financial revelations in Q2 2025 included $1.6 billion in pre-tax losses, with $950 million stemming from its Aeronautics segment and $570 million from the Canadian Maritime Helicopter Program (CMHP). The company also reported negative free cash flow of $150 million, a stark reversal from the prior year.

Reputational damage has also been a concern, particularly surrounding the F-35 program, which constitutes nearly 30% of Lockheed Martin's revenue. A settlement with the U.S. Department of Defense over defective pricing allegations has further amplified scrutiny.

Market Reaction and Broader Implications

On the day of the joint announcement, Lockheed Martin (LMT) shares were observed trading lower by 1.03% to $459.11 in premarket activity. This immediate downturn suggests that the ongoing legal and financial uncertainties surrounding Lockheed Martin may have momentarily overshadowed the positive implications of its strategic partnership in the burgeoning autonomous air systems market.

From a strategic perspective, the collaboration with BAE Systems represents a proactive move by both companies to capture market share in a rapidly expanding segment of defense technology. BAE Systems, with a robust market capitalization of $72.2 billion and 11.6% revenue growth in the last twelve months, brings considerable financial strength to the alliance. The shift in military spending priorities, moving away from expensive manned platforms like the F-35 towards unmanned systems such as drones and advanced missiles, underscores the long-term potential of this partnership.

"We're pleased to join forces with BAE Systems, combining our expertise in rapid prototyping and advanced development to deliver game-changing capabilities," stated OJ Sanchez, vice president and general manager of Lockheed Martin Skunk Works.

Dave Holmes, managing director of BAE Systems' FalconWorks division, added that the collaboration aims to "deliver disruptive capabilities that can make a real difference to our military customers at pace."

However, Lockheed Martin's internal challenges cast a shadow over its capacity to fully capitalize on new initiatives. The company's Q2 2025 operating margin stood at 3.1%, its lowest in over a decade, indicative of systemic vulnerabilities. The failure to secure the U.S. Air Force's Next Generation Air Dominance (NGAD) contract, which resulted in a $1.6 billion loss, along with a $4.6 billion IRS tax dispute, further compounds the financial headwinds. Analysts have indicated that "Legal and operational challenges threaten R&D funding for next-gen platforms, forcing investors to hedge or reduce exposure amid unresolved disputes." This suggests potential constraints on the funding required for advanced research and development in critical areas like autonomous systems.

Looking Ahead

Investors will closely monitor the developments in the shareholder class action lawsuit against Lockheed Martin, with the deadline for lead plaintiff selection set for September 26, 2025. The outcome of this litigation could have significant financial and reputational implications for the company. Simultaneously, the success of the partnership with BAE Systems in the uncrewed autonomous air systems market will hinge on Lockheed Martin's ability to navigate its internal challenges while effectively leveraging the increasing global demand for advanced, cost-effective defense technologies. The broader defense sector is expected to continue its shift towards unmanned platforms and software-enhanced products, marking a sustained trend in military spending.", image_alt_tags=[