WASHINGTON — Drawn out contractual negotiations for lots 9 and 10 of the F-35 have left Lockheed Martin paying out of pocket for joint strike fighter costs, the company disclosed July 19.
Lockheed has spent nearly $1 billion to pay out suppliers who have already started doing work on F-35 low rate initial production (LRIP) lots 9 and 10, the company's chief financial officer Bruce Tanner said Tuesday during a quarterly earnings call.
The defense prime is banking on the government to either finalize a contract — worth approximately $14 billion for more than 140 aircraft, according to the Pentagon — or to authorize a undefinitized contractual action, or UCA.
"If we don't either get funding through a funding mechanism such as a UCA funding item or we definitize the contracts, we will not be able to continue and have that level of cash outflow as a corporation," Tanner said. "We simply don't have that capacity. The Pentagon clearly knows that situation, and I'm optimistic that we're going to get cash soon."
Because a definitized LRIP 9 and 10 contract would likely include incentives for performance, it would likely generate greater amounts of funding than a UCA, he said.
"We don't care, frankly, how we get the cash," Tanner added.
Both parties expected to cement the contract agreement earlier this year, but negotiations dragged on in part because the government took longer than expected to scrutinize the cost of the airplane, F-35 program executive officer Lt. Gen. Christopher Bogdan said earlier this month at the Royal International Air Tattoo in England.
During that interview, Bogdan said that government contracting officers were hammering out the final details of the contract, and that the timing of its completion were largely up to Lockheed. But although he characterized the deal as being in the "end game," details were not announced the following week at Farnborough International Airshow.
Lockheed is on track to deliver 53 F-35s this year and does not expect the failed coup in Turkey to affect the country's participation in the joint strike fighter program, said Marillyn Hewson, Lockheed's president and chief executive officer.
"We'll continue to assess the situation and make sure that we'll share with you if there's any impact on our business," she said. "Their plan is to procure 100 F-35s, so they're a very important partner in that program."
Aside from the F-35 contracting discussions, Lockheed reported that sales and profit exceeded expectations during the second quarter of 2016. Overall sales amounted to $12.9 billion, about an 11 percent bump from the same period last year, Tanner said. That increase was partially driven by the company's recent acquisition of Sikorsky and a higher volume of F-35 production.
Segment operating profit increased by $24 million compared to 2016, for a total $1.4 billion. Tanner attributed the growth to higher profit margins in its IT and space portfolios as well as increased aeronautics sales.
The company is also on track to spin off its information systems and global solutions business, anticipating a merger with Leidos in the third quarter, Hewson said.