Lockheed Finishes $3.8 Billion F-35 Contract With U.S.

Lockheed Martin Corp. (LMT) received a Pentagon contract guaranteeing a final installment of about $127.7 million for the fifth production lot of F-35 fighters, bringing the total value to about $3.8 billion, according to the Defense Department.

Most of the $3.8 billion for 32 aircraft was committed over the last year under an initial “undefinitized” contract signed last December.

The final contract, announced today in a Pentagon statement, protects the remaining funds from sequestration, the automatic defense cuts that will begin after Jan. 2 unless Congress and the administration craft an agreement to avoid tax increases and spending cuts.

Lessons learned during lengthy negotiations on this batch of F-35s should help speed the process in pending negotiations over the sixth lot of 36 planes, Marillyn Hewson, the Bethesda- based company’s chief operating officer, said today at a Bloomberg Government breakfast in Washington.

Hewson, who will become Lockheed Martin’s chief executive officer next month, said she hoped agreement will be reached this month on an undefinitized contract for a sixth lot that would include 31 U.S. aircraft as well as three for Italy and two for Australia.

The Pentagon estimates the total cost for development and production of 2,443 F-35s will be $395.7 billion, a 70 percent increase since the initial contract with Lockheed Martin was signed in 2001.

‘Worst’ Relations

The final contract took almost a year to negotiate. In September, Lieutenant General Christopher Bogdan, who is now director of the Pentagon’s F-35 program, said relations with the company had deteriorated to “the worst I’ve ever seen.”

“It should not take 10 or 11 or 12 months to negotiate a contract with someone we’ve been doing business with for 11 years,” Bogdan said at the time.

Hewson said today “the reason why it took longer is that there was a real need to understand the cost, on both sides, from the government side, from Lockheed Martin’s side.”

Work on the planes in the fifth lot will be performed at Fort Worth, Texas; El Segundo, California; Warton in the U.K.; Orlando, Florida and Nashua, New Hampshire, the Pentagon said.

Orlando Carvalho, Lockheed Martin’s F-35 program manager, said in an e-mailed statement that the aircraft will eventually be delivered for testing to Edwards Air Force Base in California, Eglin Air Force Base in Florida and in Arizona to Luke Air Force Base and the Marine Corps Air Station at Yuma.

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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Dec. 14 (Bloomberg) -- Robert Stevens, chief executive officer of Lockheed Martin Corp., and Marillyn Hewson, president and chief operating officer, talk about the looming automatic budget cuts associated with the so-called fiscal cliff and the impact they may have on the company. Hewson will become CEO next month. They speak with Peter Cook in an excerpt from Bloomberg Television's "Capitol Gains" which will air this weekend. Bloomberg's Erik Schatzker also speaks. (Source: Bloomberg)