Lockheed Martin (Lockheed Martin (LMT)) on Monday unveiled a new, more affordable version of its Patriot interceptor, the PAC-3 Adapted Capability Effector (ACE) missile. The move comes as global demand for air defense systems continues to climb, driven by conflicts in Ukraine and the Middle East.

The new missile is expected to cost less than half of the current PAC-3 MSE interceptors, which run about $4 million apiece based on U.S. Army budget documents. Lockheed Martin anticipates that initial production could begin within the next 36 months, according to Reuters.

The company plans to work with U.S. and European industry partners on development and manufacturing. Tim Cahill, president of Lockheed Martin Missiles and Fire Control, said at the Farnborough Airshow in Britain that American and allied warfighters need a solution that is both battle-tested and cost-effective.

The announcement highlights how U.S. defense firms are capitalizing on Europe's military buildup following Russia's invasion of Ukraine. Demand for Patriot systems has surged since 2022, with Ukraine crediting them for protecting cities from Russian missile attacks. Meanwhile, escalating conflicts involving Iran, Israel, and the U.S. have further strained global supplies and exposed production bottlenecks.

Defense Contracts Fuel Growth

Lockheed Martin's push for a cheaper interceptor follows a string of big defense contracts. In June, the company announced a seven-year deal worth up to $35 billion to quadruple production of Terminal High Altitude Area Defense (THAAD) interceptors. That contract locks in years of revenue and adds another long-duration layer to its already deep backlog.

The Pentagon's ongoing issues with Lockheed Martin's F-35 program—like spare-part shortages and heavy reliance on contractors for maintenance—also highlight the lucrative potential of sustainment. For Lockheed Martin, the F-35 program's long-term value extends beyond aircraft orders. Analysts note that sustainment and modernization contracts generate recurring revenue for decades after jets enter service. The Navy's $2.3 billion F-35 sustainment contract further underscores the Pentagon's commitment to keeping the fleet operational.