Lockheed Martin and BAE Systems' research units, Skunk Works and FalconWorks, have announced a strategic partnership to develop uncrewed autonomous air systems, aiming for rapid and cost-effective innovation in electronic warfare countermeasures amidst a competitive drone sector and increasing geopolitical demand.

Defense Giants Lockheed Martin and BAE Systems Forge Alliance for Autonomous Air Systems

LONDON — U.S. arms giant Lockheed Martin and Britain's BAE Systems announced a significant strategic collaboration between their respective secretive research units, Skunk Works and FalconWorks, to develop a new uncrewed autonomous air system. This rare partnership, unveiled at the 2025 DSEI global defense conference, signals a concerted effort to accelerate innovation in the rapidly expanding drone sector, particularly for advanced electronic warfare capabilities.

The Event in Detail: A Strategic Uncrewed Systems Initiative

The alliance aims to create modular, rapidly deployable uncrewed autonomous air systems designed to deliver disruptive capabilities, including electronic warfare and precision strikes. The collaboration emphasizes the development of cost-effective and easily deployable systems compatible with diverse launch platforms, such as air drops, maritime vessels, and wide-body logistics aircraft. This modular approach is intended to reduce development costs and accelerate deployment cycles, addressing a critical need in modern defense procurement. BAE FalconWorks Managing Director Dave Holmes highlighted that by combining their expertise, the two entities could more efficiently and quickly develop a range of systems, initially focusing on electronic warfare countermeasures to create "a wall of electronic resistance" against jamming efforts.

Analysis of Market Reaction: Addressing Competition and Strategic Imperatives

This partnership arrives at a pivotal time for both companies and the broader defense industry. For Lockheed Martin, the tie-up follows a series of competitive setbacks and program losses. The company incurred significant pre-tax losses totaling $1.7 billion in the fourth quarter of 2024 for classified programs and a $1.6 billion loss in the second quarter of 2025, primarily due to challenges on a classified aircraft program. Additionally, Lockheed Martin lost the $20 billion F-47 fighter jet contract to Boeing in March 2025. Aviation historian and journalist Chris Pocock noted the timing, stating, "> Skunk Works is in need of a visible success after losing the NGAD (next-generation air dominance) contract to Boeing."

Both defense giants face increasing competition in the drone sector from agile startups offering lower-cost solutions. This collaboration is seen as a direct response to this market dynamic, with a stated objective to "deliver a technical solution as soon as possible at an affordable price." The initiative aligns with the global push for "combat mass" solutions—scalable, affordable systems that augment manned operations, aiming to integrate autonomous capabilities with existing fleets without the high costs of overhauling legacy infrastructure.

Broader Context and Implications: A Growing Market and Financial Resilience

The uncrewed combat systems market is experiencing robust growth, driven by escalating geopolitical tensions and technological advancements. Projections indicate the autonomous combat systems market is expected to grow at a compound annual growth rate (CAGR) of 16.25%, reaching $48.34 billion by 2033. Similarly, the military robotics market is forecasted to expand from $19.11 billion in 2025 to $26.49 billion by 2029. The broader Uncrewed Autonomous Air System (UAAS) market, encompassing drones and autonomous aircraft, is projected to grow at a CAGR of 14.3% from 2025 to 2030.

Despite recent challenges for Lockheed Martin, both companies demonstrate considerable financial resilience. Lockheed Martin reported a substantial order backlog of $166.5 billion as of September 29, 2024, with annual free cash flow projected at $6.7 billion for 2025. BAE Systems reported £26.3 billion in 2023 revenue and a £69.8 billion backlog, reflecting sustained demand for its defense solutions. Analyst ratings for both companies remain largely positive, with Lockheed Martin holding a "Moderate Buy" consensus and BAE Systems attracting "Buy" ratings from a majority of analysts, partly due to its strategic pivot toward autonomous systems.

Expert Commentary: Unlocking New Possibilities

OJ Sanchez, Vice President and General Manager of Lockheed Martin Skunk Works, emphasized the partnership's forward-looking nature, stating that it "> unlocks new possibilities for our customers and advancing the future of autonomous systems." This sentiment underscores the collaborative effort to leverage combined strengths for enhanced agility and adaptability in a rapidly evolving technological landscape.

Looking Ahead: A Pivotal Juncture for Autonomous Defense

The success of the Lockheed Martin and BAE Systems partnership will largely hinge on its ability to deliver cost-effective, rapidly deployable systems that align with global military modernization priorities. The focus on "speed-to-capability" resonates with the urgent need for rapid response capabilities amidst increasing geopolitical instability. Investors will be closely monitoring the development timeline and initial deployments, as successful outcomes could solidify both companies' market positions in advanced military technology and unlock significant new revenue streams. This collaboration represents a critical juncture in the defense sector's trajectory towards hybrid fleets, combining manned and unmanned assets, driven by strategic innovation, regulatory support, and long-term growth potential in a sector where the future of warfare is being actively reshaped.