Lockheed’s Next F-35 Batch Valued at $4.55 Billio

By Tony Capaccio

Lockheed Martin Corp. (LMT)’s latest contract for 43 F-35 fighters has a value of about $4.55 billion, with prospects for a deal for as many as 153 more aircraft about a year from now, according to the Pentagon.

The Defense Department and officials from Bethesda, Maryland-based Lockheed will announce specifics for the eighth production batch of Joint Strike Fighters under the new contract in about the third week of November, Air Force Lieutenant General Christopher Bogdan, director of the Pentagon’s F-35 program office, told reporters yesterday.

Bogdan previously had acknowledged only that Lockheed, the biggest U.S. contractor, and the Pentagon had reached an agreement in principle for 29 fighters for the U.S., plus two aircraft each for Israel, Norway and Italy and four each for Japan and the U.K.

Separately, the Pentagon yesterday announced a $793 million contract modification for United Technologies Corp. (UTX)’s Pratt & Whitney unit to provide 48 additional F-35 engines under an eighth contract, bringing its total value for that batch to $1 billion.

Bogdan told reporters that Pratt & Whitney’s price represented about a 9 percent reduction from prices in the sixth contract.

Planned Increases

For Lockheed, the eighth contract and plans for a combined ninth and 10th batch mark the Pentagon’s planned increase in F-35 production from 29 a year in fiscal 2013 and 2014. For the current fiscal year, the Pentagon requested 34 aircraft, eight fewer than originally planned, due to budget constraints.

The U.S. Government Accountability Office said in a September audit that the Pentagon continues to “develop and field the most costly weapons system program in history without knowing whether the Air Force, Navy and Marine Corps can pay for it.”

The GAO said the program’s estimated cost of $1 trillion for more than 50 years of “sustainment costs could potentially increase well beyond current estimated levels and operational readiness could suffer.”

Bogdan said yesterday that the Pentagon will start negotiations with Lockheed for a deal on the combined ninth and 10th rounds that would continue to achieve lower prices and would send “a very powerful signal to the supply chain” that “this is a stable program.”

The ninth contract would be for 57 aircraft, including 34 for the U.S., and the 10th would be intended to buy 96, with 55 of them for the U.S.

Those quantities will be jeopardized if Pentagon spending is subjected to the planned automatic cuts known as sequestration starting in fiscal 2016. A Pentagon report in April said the U.S. would cut 17 of the 343 F-35s it planned to buy from Lockheed in fiscal 2016 through 2019.

Lockheed has been asked to submit a bid for the combined contract that contains various quantities and prices, Bogdan said.

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

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