Lockheed Told It Must Put F-35’s Success Over Profit

Lockheed Martin Corp. (LMT) executives must put improving performance of the F-35 fighter, the Pentagon’s costliest program, over immediate profit, the military’s purchasing chief said.

“We want to know that when they come to us with an initiative or proposed solution to a problem that it’s motivated by the welfare of the program” and not “focused on a short- term business goal they are trying to accomplish,” Frank Kendall, undersecretary of defense for acquisition, told reporters yesterday at the Pentagon.

The company is in the midst of prolonged negotiations with the Pentagon on orders for the fifth batch of F-35s, and the program has faced cost overruns and testing delays. Kendall said yesterday the resignation Nov. 9 of Lockheed’s incoming chief executive officer, Christopher Kubasik, because of a relationship with a subordinate won’t hurt the company’s dealings with the Pentagon.

“Lockheed has dealt with the situation appropriately” as it’s an internal matter, Kendall said. “We are adult professionals. We come to things with our own business perspectives, and we can meet and work out deals. This stuff isn’t personal.”

Marillyn Hewson, a Lockheed employee for almost three decades who was selected to take over as CEO in January instead of Kubasik, has a reputation as a “capable professional, and I am looking forward to working with her,” Kendall said.

Lockheed was the Pentagon’s biggest contractor in the government’s fiscal year that ended Sept. 30, 2011, with $36.4 billion in direct, or prime, awards, according to a Bloomberg Government study on the top 200 contractors.

‘Worst’ Relationship

Buying a planned inventory of 2,443 F-35s for the Air Force, Navy and Marine Corps is now estimated to cost $395.7 billion, a 70 percent increase since Bethesda, Maryland-based Lockheed won the contract in late 2001.

The deputy head of the Pentagon’s F-35 program, Air Force Major General Christopher Bogdan, said in September his office’s relationship with Lockheed had deteriorated to “the worst I’ve ever seen.”

Bogdan was referring to the communications between Lockheed and the program office, Kendall said.

“Lockheed has seemed to them to be focused on short-term business goals, and we’d like to see them focused more on execution of program and successful delivery of the product,” Kendall said.

Eighty-two percent of the company’s $46.5 billion in revenue last year came from the U.S. government, mostly from the Defense Department, according to the company’s annual report.

Work on the F-35 “is progressing very well,” Hewson said Nov. 12 on a conference call with analysts.

“We are going to meet our commitments this year on delivering the aircraft that we’ve committed to” and “we’ll continue to be very much engaged.”

“We won’t miss a beat on F-35,” she said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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