Lockheed Martin [LMT] expects to receive a contract for the next batch of F-35 Joint Strike Fighters (JSF) later this year and the company is still keeping open its options regarding a unilateral contract option taken by the program office late last year for the ninth lot of the next-generation fighters, Bruce Tanner, chief financial officer (CFO) for Lockheed Martin, said on Wednesday.
The contract for Lot 11 Low Rate Initial Production (LRIP) is forecast to be late in the third quarter or early fourth quarter, Tanner said at the Cowen Group Aerospace/Defense & Industrials Conference for investors. The proposal has been or is about to be submitted for the next contract, he said.
Earlier this month the Pentagon awarded Lockheed Martin the Lot 10 LRIP award for F-35, which brought the definitized value of contract for the 90 aircraft to nearly $9 billion. With the award the unit cost for each F-35A dropped to $94.6 million from $102.1 million in the LRIP 9 contract that was awarded late in 2016. The F-35A is the conventional take-off-and-landing variant of the JSF that the Air Force is buying.
Tanner said that with the cost data in hand from the LRIP 10 award that should make it easier to get through negotiations on LRIP 11. He also said his company is “ready” to get future F-35 contracting done “on a more timely basis than what we’ve seen in the past.”
The LRIP 9 contract was imposed on Lockheed Martin unilaterally by the Pentagon last November after protracted negotiations failed to result in a contract agreed to by both parties. Afterward the company said it would consider its options and has maintained that position since.
Tanner said on Wednesday that the company could pursue a remedy through a federal appeals court and has through the length of the contract to decide. Other options include reconciling differences though “the overall mix of negotiations and considerations…without going down the legal course.”
“So we’re not in any hurry,” Tanner said. “We’re not under any pressure to resolve this thing right now. We’d like to but there’s no pressure to make it happen.”
Lockheed Martin came under pressure from then President-elect Donald Trump to cut costs on the F-35 program. Trump took credit for the lower unit costs contained in the LRIP 10 contract although the program costs have been coming down for years and were expected to come down further in the latest award.
Before the LRIP 10 contract was awarded, Lockheed Martin released a web slide showing there has been a 60 percent reduction in F-35A unit costs between Lot 1 and Lot 10. Moving forward, additional cost reductions are expected as the number of aircraft purchased increases.
In 2019 Lockheed Martin projects the unit costs for the F-35A will drop to $85 million but that will depend on the type of contract such as a block buy, Tanner said. The “quantities are there” to support the lower price per aircraft but it comes down to “how you buy the aircraft to support the quantities,” he said.
Tanner also said the profile of continued higher margins on the F-35 continues with the Lot 10 award.