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Lockheed to get $34 billion for F-35 as Pentagon announces award

Bloomberg logoBloomberg 10/28/2019 Tony Capaccio and Julie Johnsson
Lockheed delivers next version of F-35 logistics system© Reuters Lockheed delivers next version of F-35 logistics system

The Pentagon announced a final agreement with Lockheed Martin Corp. on the biggest contract yet for the next-generation F-35 jet.

While the purchase of this new group of stealthy F-35s for U.S. and allied militaries is expected to be valued at about $34 billion for 478 fighters, the Defense Department’s daily contract summary on Monday specified a partial installment of $7 billion.

“The U.S. Department of Defense and Lockheed Martin have made tremendous progress and now have an agreement regarding the production and delivery of F-35 Lots 12-14,” Lt. Michael Andrews, spokesman for Pentagon acquisitions chief Ellen Lord, said in a statement. “This agreement represents our continued commitment to reduce F-35 cost aggressively, incentivize Industry to meet required performance, and deliver advanced capabilities to our warfighters at the best value to our taxpayers.”

The deal, which Lord is expected to detail at a news conference on Tuesday morning, concludes years of discussions aimed at lowering the price for the advanced fighter to about $80 million for some variants, while guaranteeing production stability for Lockheed’s largest source of profit, said Bloomberg Intelligence analyst Douglas Rothacker.

“It’s a big positive for the company,” he said. “It’s a huge show of support from the government that they’re going to extend a contract of this size for their most important weapons program.”

Related video: NATO deploys F-35 fighters jets for the first time to police Iceland’s airspace (provided by NBC News)

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Falling production costs will open up additional international sales opportunities for the F-35, Ken Possenriede, chief financial officer for Bethesda, Maryland-based Lockheed Martin, said during the company’s Oct. 22 earnings call. Lockheed is on track to hit the $80 million target in production lot 13, he said, about the middle of the multiyear contract.

Lockheed rose as much as 1.3% to $375.45 Monday after Bloomberg News reported that the so-called block buy talks were concluded. The stock had advanced 42% this year through Friday, double the gain of the S&P 500.

The latest agreement brings to about 978 the number of U.S. and allied jets on contract out of a planned total of at least 3,100. The jet is still months away from the completion of rigorous combat testing against the toughest Russian and Chinese threats.

Officials disclosed earlier this month that a formal “full-rate” production decision would be delayed as much as 13 months until the tests are complete, using a high-fidelity simulator that’s still not running.

The F-35 has faced years of delays and cost overruns. The long-term cost of operating and supporting the fleet of fighters over more than six decades has increased to $1.196 trillion, according to the Pentagon’s latest cost assessment of major projects.

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