Lockheed Martin Corp.'s LMT Aeronautics business division has won a modification contract to identify and execute cost savings projects in order to reduce the cost of the F-35 Joint Strike Fighter air system.
Contract Details
Valued at $60million, the contract has been awarded by the Naval Air Systems Command, Patuxent River, MD.
The work is scheduled to be completed by July 2020 and will use fiscal 2017 aircraft procurement (Air Force, Navy and Marine Corps) funds. While majority of the work related to this contract will be carried out in Fort Worth, TX, the rest will be performed in multiple locations across the United States and the United Kingdom.
F-35 Attributes
Lockheed Martin’s F-35 Lightning II is a single-seat and single-engine 5th Generation fighter aircraft, which comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. Currently, three variants of F-35 are set to replace five fighter jets for the U.S. Air Force, Navy and Marine Corps as well as a variety of fighter jets for at least 10 other countries.
Notably, the F-35 program has been supported by an international team of leading aerospace majors with Lockheed Martin being the primary partner. Evidently, Northrop Grumman Corp. NOC contributed its expertise in carrier aircraft and low-observable stealth technology to this program, BAE Systems plc’s BAESY short takeoff and vertical landing experience as well as air systems sustainment supported the jet’s combat capabilities. In addition, Pratt & Whitney, a unit of United Technologies Corporation UTX, provided F-35s with the F135 propulsion system, which is the world's most powerful fighter engine.
Our View
We remind investors that despite offering superior air security and stability, the F-35 program has been facing some engine-related technical issues for the last few years. Additionally, it has been repeatedly criticized by President Trump on being an overtly expensive project. In this context, Lockheed Martin finally inked a deal worth $8.5 billion with Pentagon this February with the intent of delivering 90 F-35s of the 10th Lot at a historically low rate either forced by Trump’s intervention or to keep management’s earlier promise to cut down cost by 6–7%.
Going forward, Lockheed Martin's management is likely to adopt a cost-saving initiative to lower sustainment costs for F-35 by 10%, over the next couple of years. This, in turn, is anticipated to result in cost savings of $1 billion over a five-year period.
In fact, we believe the recent contract win will enable the company to take a step toward achieving its goal and allow it to provide more of these combat aircraft at an efficiently reduced rate.
Meanwhile, Lockheed Martin is enjoying steady flow of contracts from the Pentagon since reduction of its F-35 price. In July, Lockheed Martin won a modification contract, worth $5.6 billion, to offer low-rate initial production of the 11th lot of F-35 Lightening II Joint Strike Fighter.
Furthermore, with the U.S. government expecting to spend approximately $400 billion in the upcoming decades for the development and purchase of 2,443 F-35 jets, Lockheed Martin is trying its best to effectively reduce the price of this program. Also, the government is likely to place larger orders, thus boosting the company’s profits in the near term.
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