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2018/07/16(月) 00:27:05.20ID:CAP_USER9Pentagon Nears New F-35 Deal
Lockheed Martin to book bulk of contract for 141 jets in third quarter, easing investors’ concerns
By Doug Cameron
July 15, 2018 10:13 a.m. ET
The Pentagon said Sunday that it had reached a multi-billion-dollar “handshake deal” with Lockheed Martin Corp. LMT 1.62% on buying the next batch of F-35 combat jets after months of wrangling over price and other terms.
A final deal would allow the world’s largest defense contractor by sales to book the bulk of the contract for 141 jets likely to be worth more than $12 billion in the third quarter.
The contract would help ease investors’ concerns about defense sector growth that have weighed on shares in recent months.
The two sides had hoped to finalize a deal almost a year ago, but sale discussions have become prolonged by disagreements over the price of the new jets, flying costs and repair bills for already delivered aircraft.
Ellen Lord, the Pentagon’s chief weapons buyer, announced the preliminary deal in a statement on the eve of the biennial Farnborough Air Show, though last week she canceled plans to attend the U.K. event, citing other commitments.
The F-35 is the world’s largest military program and already accounts for about a quarter of Lockheed’s annual sales, as well as significant shares at partners including Northrop Grumman Corp. , BAE Systems PLC and United Technologies Corp. , the latter of which finalized a deal on the engines for the new jets earlier this year.
Pentagon officials have grown frustrated with efforts over the past three years to cut the cost of buying and flying as many as 2,400 of the radar-evading jets. The F-35 fleet would replace most U.S. jet fighters over the next 30 years at a cost of more than $400 billion. U.S. allies plan to buy up to 500 more jets.
Ms. Lord didn’t provide a contract value. Lockheed and its partners have already cut the average price of the F-35A model used by the U.S. Air Force to around $95 million, from $122 million five years ago.
They aim to reduce the price to roughly $80 million by the end of the decade. But Pentagon leaders want bigger cuts as annual production climbs toward 150 jets in the early 2020s, from 66 last year.
Lockheed said in a statement that the average cost of the jets had fallen significantly in the latest preliminary deal from the previous batch but didn’t provide more details.
The company has proposed that the Pentagon will have to help fund further cost-cutting efforts to reduce production and flying costs beyond the industry-backed efforts already under way.
The Bethesda, Md., company wants to persuade lawmakers and the Pentagon to buy hundreds of the jets in a single, multiyear contract in the early 2020s to harvest economies of scale from increased production.
Pentagon officials say they worry the F-35’s high costs will force the Defense Department to cut the number of planes ordered so that it can continue to fund other projects such as ballistic-missile submarines.
“We can’t afford the sustainment costs we have on the F-35,” Ms. Lord told reporters in January.
Navy Vice Adm. Mat Winter, the military head of the F-35 program, earlier this year criticized Lockheed’s tactics in negotiating the latest batch of planes. He said the government would take over some repair work so contractors could focus on producing more spare parts to tackle reliability problems.
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