A Texas federal judge ruled on Dec. 29 that Pittsburgh’s Howmet Aerospace [HWM] likely broke its contract to supply titanium mill products to Lockheed Martin [LMT] for the F-35 fighter, but the judge found no “irreparable harm” to the F-35 and denied Lockheed Martin’s request for a preliminary injunction to compel Howmet to deliver those titanium products at the negotiated lower, fixed price.
Such products include titanium ingot, billet, sheet and plate.
“Lockheed argued that it would suffer irreparable harm in three ways if Howmet’s breaches of the parties’ contract continued: (1) threaten national security by delaying the critical F-35 program, (2) damage Lockheed’s reputation and goodwill with current and prospective customers, including the United States, and (3) lose a bargained-for right to demand continued performance of the contract during a dispute,” U.S. District Court Judge Reed O’Connor of the Northern District of Texas wrote in the Dec. 29 opinion.
“Based on the evidence presented at the [Dec. 26] hearing, the court still finds that the first two alleged harms are not irreparable,” the opinion said. “Lockheed has not demonstrated an imminent threat to national security or its reputation and goodwill, particularly in light of the ongoing delays and backlogs already plaguing the F-35 program. And although the third harm—the loss of a bargained-for right—qualifies as the type of harm that cannot be undone through monetary remedies, the evidence at the hearing established that the harm is neither imminent nor concrete.”
At the Dec. 26 preliminary injunction hearing, Lockheed Martin’s witnesses “explained that the fixed pricing structure was negotiated on behalf of the [Lockheed Martin] Qualified Suppliers to make pricing uniform and to prevent disruption in the supply chain for the F-35 program, but at the same time, the evidence revealed that multiple Qualified Suppliers have already agreed to pay Howmet’s demand for higher prices,” the court said. “Even though this very likely breaches the fixed pricing clause that Lockheed negotiated, the willingness of Qualified Suppliers to pay more for titanium mill products indicates there is not widespread disruption in the supply chain due to Howmet’s likely breach of the fixed pricing term. So far, only one Qualified Supplier refused to pay the higher price and one other retracted its initial consent to pay.”
While O’Connor did not approve Lockheed Martin’s request for a preliminary injunction, based in part on the above evidence of other companies’ agreeing to pay higher titanium prices, he found that it “appears Howmet is intentionally breaching the parties’ contract—just as their Japanese suppliers did to them.”
“As such, the court further orders that this case will be adjudicated on an expedited schedule in the interests of justice,” the opinion said.
Lockheed Martin filed the lawsuit on Nov. 30, and, on Dec. 1, in response, Howmet said that “contrary to the allegations in Lockheed Martin’s complaint, Howmet takes its contractual and regulatory obligations seriously and believes it has complied with those obligations in all material respects.”
The titanium products “are made by mixing titanium sponge and titanium scrap metal that is reverted back to Howmet by its customers to recycle into new product,” Howmet said.
Russia’s invasion of Ukraine on Feb. 24, 2022 has “dramatically reduced global titanium sponge supply,” according to Howmet. “As a result, Howmet’s titanium sponge suppliers drastically increased their prices, contrary to their agreements with Howmet. At the same time, further exacerbating the situation, Lockheed Martin permitted customers to sell their revert scrap metal to third parties rather than provide it to Howmet as contractually required. This allowed the customers to profit from highly inflated prices on the open market.”
“Despite these significant challenges, Howmet continued to purchase titanium sponge and titanium scrap metal on the open market in order to supply the F-35 program and our customers, including Lockheed Martin,” Howmet said. “Since 2022, Howmet has been transparent with Lockheed Martin about these challenges and has acted in good faith to attempt to reach a reasonable resolution for the benefit and long-term health of the F-35 program. While such discussions were still ongoing, Lockheed Martin unfortunately chose to file a meritless lawsuit seeking to compel Howmet to continue to supply Product at prices that no longer reflect commercial reality and on terms that Howmet believes it is not contractually obligated to provide.”
Lockheed Martin said on Jan. 5 that it is “pleased with the court’s finding that Howmet appears to be intentionally breaching the contract and ordered the case to be adjudicated on an expedited schedule.”