Frank Kendall, undersecretary for acquisition, technology and logistics, said in a conference hosted by the Potomac Officers Club that the Pentagon expects to make "disproportionate" cuts to modernization and research and development funding in its fiscal 2017 budget request. This may imply the possible slowdown in production rates of Lockheed Martin Corp's LMT F-35 fighter jet.
Kendall admitted that the F-35 fighter jet was the Defense Department's "most cutting-edge capability," but other priorities including work on a new nuclear-armed submarine needed funding as well.
He added, “It is our most cutting edge capability. Dollar for dollar it probably gives us more combat capability than any other investment that we’re making, but we’ve got a lot of other things that we’ve got to do as well. So it’s not entirely fenced. I can’t say that it’s entirely fenced.”
Fiscal 2017 budget plans would be finalized in the coming weeks, but he expects that certain limitations on the budget related to training, personnel costs and force structure may implicate a major hit on weapons programs in the fiscal 2017 budget plan. And it is quite obvious that nothing is a bigger target than the F-35 program, the Pentagon’s single largest weapon program.
Yet, he acknowledged that the budget deal reached by the Congress was better than expected. The new budget deal with the Congress provided the Pentagon with a two-year budget certainty.
While Kendall gave no further details on the possibility of the expected cut in production of the F-35 fighter jet, he made it clear that it would not be feasible to defend the new jets entirely in the current budget environment.
At the same time, he also argued that the Pentagon remained committed to the $391 billion single largest weapons program − F-35. And a five-year plan released with the fiscal 2016 budget had planned for 66 U.S. orders for the F-35 in fiscal 2017 beginning Oct 1, 2016.
The Pentagon's F-35 spokesman, Joe DellaVedova, did not make any comments on the possible slowdown in the F-35 production rate. He revealed that Lockheed Martin had delivered 42 of 45 F-35s planned for 2015. The company is also on track to deliver the remaining jets before 2015 end. The defense major has delivered a total of 150 F-35s to the U.S. military and its allies to date, he said.
Lockheed Martin holds a Zacks Rank #3 (Hold). Investors may consider some better-ranked stocks that include Leidos Holdings, Inc. LDOS, Boeing BA and General Dynamics GD. While Leidos Holdings sports a Zacks Rank #1 (Strong Buy), Boeing and General Dynamics carry a Zacks Rank #2 (Buy).
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