Lockheed Wins $8.2 Billion F-35 Contract After Trump IntervenesBy and
Deal comes out at $728 million less than previous contract
President had vowed to rein in ‘out of control’ program
The White House announced a contract for 90 F-35 jets from Lockheed Martin Corp. valued at as much as $8.2 billion, boasting of savings after President Donald Trump chided that the Pentagon’s costliest program was “out of control.”
Based on the per-plane cost, the savings will be $728 million compared with the previous contract, according to a Pentagon statement. That exceeds the $600 million in savings that Trump said he achieved after criticizing the fighter’s cost and intervening with Lockheed Chief Executive Officer Marillyn Hewson.
“Another big win the president has delivered on for U.S. taxpayers,” White House Press Secretary Sean Spicer told reporters at midday Friday. The announcement from the White House press room marked a striking change from the Pentagon’s usual practice of issuing major contracts in bureaucratic statements after the close of New York trading.
The contract was under negotiation for more than a year, and Defense Department officials were already working toward the reduction in cost before Trump tweeted his dissatisfaction.
“We were very close on price prior to President Trump’s involvement,” Frank Kendall, the Pentagon’s chief weapons buyer under President Barack Obama, said in an e-mail.
Lockheed credited economies of scale and production efficiencies for the savings in the new pact, but also said in a statement that Trump’s personal involvement “accelerated the negotiations and sharpened our focus on driving down the price.”
The new contract is the 10th tranche in a $379 billion program. At least $2.1 billion of the contract had already been advanced to Lockheed, including $1.35 billion in November, before the expected announcement.
Air Force Lieutenant General Chris Bogdan, the Pentagon’s F-35 program manager, told reporters Dec. 29 that the 10th contract would be valued at about $8 billion and that the 90 aircraft would be progressively cheaper than the eighth and ninth batches, in part because of Pentagon negotiations and in part because of economies of scale.
Lockheed rose 1 percent to $254.46 at the close in New York and has gained 1.8 percent this year.
The final price for the Air Force’s F-35A version in the 10th contract is $94.6 million including the aircraft, engine and fee, 7.3 percent less than in the previous tranche.
Trump had assailed the weapon program’s costs in a series of Tweets since being elected president in November before boasting at a White House meeting with small business owners that “we cut approximately $600 million off the F-35 fighter.”
But Lockheed officials had already projected that costs for the highest-volume variant of the F-35 would fall under $100 million per plane as the defense contractor works with its suppliers to ramp up production and eliminate costs. The Bethesda, Maryland-based company is on track to make the fighter for as little as $85 million per jet by 2019, Hewson reiterated during a Jan. 24 earnings call.
The F-35 is Lockheed’s largest source of profit. Its cutting-edge technology has been undercut by malfunctions, prompting the Obama administration’s top weapons tester, Michael Gilmore, to warn Congress in January of “significant, well-documented deficiencies in critical combat capabilities.”
— With assistance by Justin Sink