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Lockheed CEO: F-35A Price to Drop Below $100M in Next Contract

January 24, 2017 (Photo Credit: Airman 1st Class Derek Seifert/ US Air Force)
WASHINGTON — A deal for the tenth lot of F-35s will put the Air Force’s A model under $100 million per plane for the first time, and Lockheed Martin is on track to bring unit costs for an F-35A to $85 million in 2019, the company’s CEO said Tuesday.

A comparison with past estimates shows that these figures are on track with Defense Department and Lockheed’s own expectations, and do not necessarily reflect a decrease in unit prices caused by President Trump’s public critique of the program.

Trump has been hammering the joint strike fighter since December, frequently stating that the price of the aircraft is “out of control” and calling for an alternative in Boeing’s Super Hornet.

During a Tuesday earnings call, Lockheed CEO Marillyn Hewson defended the company’s trajectory of cost reduction, citing its Blueprint for Affordability initiatives. Perhaps even more fascinatingly, she painted Lockheed’s relationship with the new president as cooperative — a depiction at odds with the more antagonistic tenor of Trump’s public comments about the fighter jet.

“His focus is on, how do we drive the cost down aggressively, and I think we, along with our industry partners, are right in line with him on doing that. We have a lot of ideas on how we can do that in the future” she said.

“The meetings that we've had have been very productive, very good dialogue. He asks excellent questions and he is really focused on making sure that costs come down on the program,” she said. “It's not about slashing our profit. It's not about our margins.”

Hewson’s comments in some ways match the reassuring tone struck by Defense Secretary James Mattis. During his confirmation hearing, Mattis told senators that Trump has "in no way shown a lack of support for the program,” but wants to see Lockheed bring prices down.

Hewson has met twice with Trump to speak about the program, most recently on Jan. 13. After that meeting, she told reporters that the Defense Department and Lockheed were “very close” to a deal on the tenth batch of joint strike fighters — an assertion she repeated during the earnings call.

“The LRIP 10 price, as currently proposed, would represent a reduction of over 60 percent from the first LRIP 1 aircraft, and this demonstrates a learning curve as efficient as any achieved on any modern tactical fighter aircraft,” she said.

The LRIP 10 contract will also mark a sharp production increase, from 57 aircraft in LRIP 9 to about 90 F-35s in the tenth batch. F-35 Program Executive Officer Lt. Gen. Christopher Bogdan said late last year that he expected to see unit prices fall about 6 percent between the two orders.

Lockheed CFO Bruce Tanner predicted that the F-35 will have “sequential, year-after-year margin improvements” leading up to full rate production, and that LRIP 10 would not deviate from that path.

The company hopes to finalize negotiations on LRIP 11 in 2017. If orders increase as planned, Lockheed will be on track to offer the F-35A at $85 million per copy in LRIP 13 — a 2019 order comprised of about 200 jets, according to a chart shown by Hewson during the call.  

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