Pentagon Is Expected to Split Lockheed's Next F-35 Order
October 25 2016 - 11:04AM
Dow Jones News
By Doug Cameron
The U.S. Defense Department said it may split a $14 billion
order for the next two batches of F-35 combat jets after failing to
reach agreement on a single deal with lead contractor Lockheed
Martin Corp.
Lockheed has been in talks with the Pentagon for months about a
combined deal for 160 jets covering two years of production, and
the two sides had hoped to reach agreement in early 2016.
But negotiations over price and other issues have dragged on
longer than expected as the Pentagon tries to cut the cost of the
F-35A model used by the U.S. Air Force to around $80 million by the
end of the decade.
The F-35 program office said it may now award a deal first on
the smaller ninth batch of jets, which involves more than 63
planes, rather than combine it with a 10th batch.
Negotiating F-35 deals in bigger batches was intended to cut the
Pentagon's price and help Lockheed and its partners negotiate
better deals with their suppliers, but the process is proving
tougher than expected.
The F-35 accounts for about 20% of Lockheed's revenue and is an
important contributor to sales and earnings at others including
Northrop Grumman Corp. and BAE Systems PLC, as well as dozens of
smaller contractors.
Analysts are closely watching pricing on the next two batches of
jets as the F-35 currently generates lower margins than Lockheed's
other planes.
The Pentagon paid Lockheed almost $1 billion in August to cover
supplier costs on the ninth batch and is in talks about another
payment to help fund the 10th, according to the program office.
Lockheed declined to comment on talks with the Pentagon but said
in its updated guidance released with earnings Tuesday that its
forecasts for 2016 and 2017 hinge on when it secures the next two
F-35 deals.
Third-quarter profit roundly beat analysts' expectations and the
company boosted 2016 sales guidance and forecast revenue would rise
another 7% next year to almost $50 billion.
Lockheed reported a quarterly profit of $2.4 billion compared
with $865 million a year earlier as per-share earnings rose to
$7.93 from $2.77 share. Revenue climbed 15% to $11.55 billion. For
the full year, it expects earnings of about $12.10 a share on
revenue of $46.5 billion. It previously forecast $11.15 to $11.45 a
share on $45 billion to $46.2 billion in sales.
Anne Steele contributed to this article
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
October 25, 2016 11:49 ET (15:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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