US Air Force to retire all A-10s, cancel E-7 under 2026 spending plan

The Air Force's fiscal 2026 budget proposal reveals a strategic pivot, marked by the proposed retirement of 340 aircraft, including the final 162 A-10 Warthogs, and the cancellation of the E-7 Wedgetail program due to cost overruns, favoring space-based alternatives. The proposed $211 billion discretionary budget, potentially reaching $249.5 billion with reconciliation, prioritizes next-generation systems such as the B-21 Raider ($10.3B) and LGM-35A Sentinel ($4.2B), alongside increased investment in Collaborative Combat Aircraft ($807M) and Next Generation Air Dominance R&D. This shift includes a significant reduction in F-35 procurement (from 74 to 47 jets across services, with Air Force F-35A buys nearly halved), reallocating funds to sustainment. The plan signals a clear strategic pivot towards advanced capabilities, though congressional approval for major divestments remains a key uncertainty.

Analysis

The proposed fiscal 2026 Department of the Air Force budget signals a significant strategic reallocation of capital, pivoting from legacy platforms to next-generation systems and creating clear winners and losers among prime defense contractors. The plan, which hinges on a $211 billion discretionary budget potentially rising to $249.5 billion with a contentious reconciliation bill, calls for the largest aircraft retirement in years, including the entire 162-jet A-10 fleet. Northrop Grumman emerges as a primary beneficiary, with its B-21 Raider program set to receive $10.3 billion and its LGM-35A Sentinel missile program $4.2 billion, positioning the company at the core of strategic modernization. Conversely, Lockheed Martin faces a material headwind with F-35 procurement being sharply cut from 74 to 47 jets across services, and Air Force F-35A spending dropping from $4.5 billion to $3.6 billion as funds are redirected to sustainment. For Boeing, the outlook is mixed; it suffers the cancellation of the E-7 Wedgetail program due to cost overruns and survivability concerns, but benefits from a reversal on the F-15EX program, which will now receive $3.1 billion for 21 jets, and increased R&D funding for the Next Generation Air Dominance fighter. This entire budget is subject to considerable legislative risk, as Congress has previously blocked major aircraft retirements and the passage of the reconciliation bill, which contains $38.6 billion in mandatory spending, is far from certain.

Key Decisions for Investors

• Investors should closely monitor the congressional budget process, as the proposed divestments and the critical $38.6 billion in reconciliation spending face significant legislative hurdles that could materially alter program funding for all major defense contractors.
• Northrop Grumman's position appears the most favorable under this proposal, and investors could view its overweight exposure to prioritized platforms like the B-21 and Sentinel as a key positive differentiator.
• For Lockheed Martin, the sharp cut in F-35 production is a major risk factor to its near-term growth outlook, and investors should re-evaluate revenue projections, weighing the loss of new airframe sales against the increase in sustainment and upgrade contracts.
• Boeing's outlook is nuanced; while the E-7 cancellation is a setback, the revived F-15EX line and increased Next Generation Air Dominance funding provide stability, suggesting investors should assess the net impact of these program shifts on its defense segment profitability.