Photographer: Jeff J Mitchell/Getty Images

Pentagon Advances $1.3 Billion to Lockheed for Biggest F-35 Job

  • Down payment on 10th production job comes as talks continue
  • Eventual contract could be valued at as much as $7.2 billion

Lockheed Martin Corp. received a $1.28 billion Pentagon down payment to continue production of the F-35 jet while negotiations continue on a contract valued as much as $7.19 billion for 90 aircraft, the biggest order yet.

The $1.28 billion released Wednesday under what’s known as an “undefinitized contract action” will bankroll continued assembly for jets that won’t be delivered until 2018, pay hard-to-maintain suppliers and correct deficiencies found in testing on earlier jets, the Defense Department said in a statement.

“With a complex production line and a dynamic supply chain, it was important to obligate funds” using the down payment process to prevent major delays, said Joe DellaVedova, spokesman for the department’s F-35 program office. “We are confident that the finer terms” of the 10th contract “will be settled over the next few months.”

Lockheed spokesman Mark Johnson said in an e-mail that the company appreciates the actions taken to “ensure delivery of F-35’s to our warfighter customers.”

Earlier Anger

It was a contrast from the company’s angry response earlier this month when the Pentagon awarded a $6.1 billion final contract for the ninth production lot of 57 jets on its own terms after 18 months of inconclusive negotiations.

In a break from the praise that major contractors and the Pentagon usually lavish on each other, the company complained then that it was “not a mutually agreed-upon” contract and that “we are disappointed with the decision by the government to issue a unilateral contract action.”

The F-35 is the costliest U.S. weapons system, projected at $379 billion for a fleet of 2,443 U.S. planes, with more than 600 additional aircraft to be sold to partners such as the U.K., Australia, Japan and Italy.

The money advanced Wednesday will pay for work on the F-35 in Fort Worth, Texas; El Segundo, California; Orlando, Florida; Nashua, New Hampshire, Baltimore; Nagoya, Japan and Warton in the U.K., according to the Defense Department.

DellaVedova said the announcement didn’t signal that a $7 billion award is a sure thing for Lockheed, but rather that it’s the ceiling for the 10th contract still subject to talks. He said the final figure will be agreed to next year.

‘Handshake Agreement’

Lockheed and Pentagon officials “intend to have a handshake agreement during the next few months,” he said. Lockheed has had to pay out of its own funds about $1 billion for production costs on the ninth and 10th contracts as negotiations dragged on for over a year.

Pentagon weapons buyer Frank Kendall has said defense officials were “equally disappointed that we couldn’t reach agreement” with Lockheed Martin on the ninth contract. “We still hope to reach agreement” on the 10th, he said.

Both parties were close to agreement before Lockheed rejected the Pentagon’s “best and final offer,” according to industry and government officials familiar with the ninth contract.

Bruce Tanner, Lockheed’s chief financial officer, said on an Oct. 25 earnings call that the company’s differences with the Defense Department on the ninth contract concerned the cost to perform the contract, terms and conditions and “the profit level for the contractor.”

— With assistance by Julie Johnsson

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