Lockheed Martin CEO says company 'close to deal' on bringing down F-35 program costs

Lockheed called to Trump Tower. Now what?
Lockheed called to Trump Tower. Now what?

Lockheed Martin CEO Marillyn Hewson said on Friday the aerospace company is "close to a deal" to bring down the cost of its F-35 program following repeated criticisms from President-elect Donald Trump.

"I certainly share [Trump's] views that we need to get the best capability to our men and women in uniform. And we need to get it at the lowest possible price," Hewson told reporters on Friday after a meeting at Trump Tower.

"I'm glad I had an opportunity to tell him that we are close to a deal that will bring the cost down significantly from the previous lot of aircraft for the next lot of aircraft," she said. "And, moreover, it's going to bring a lot of jobs to the United States. In fact, we're going to increase our jobs in Fort Worth by 1,800 jobs."

Hewson's discussions with Trump mark her second such meeting.

Trump has been critical of Lockheed's programs' delays and costs. In December, Trump said via Twitter that "billions of dollars can and will be saved on military (and other) purchases" once he takes office in January.

During his press conference Wednesday, Trump criticized the F-35 program again and even suggested Boeing's F-18 fighter could be an alternative. "It's way, way behind schedule and many billions of dollars over budget," he said.

"There's an attempt here to come to some sort of reconciliation (with Lockheed)," said Richard Safran, Buckingham Research Group director of equity research. He said there's "an expectation or hope on Lockheed's side that they can get the cost down similar to what Boeing promised for the F-18."

The analyst said Trump's "heart seems to be in the right place to save taxpayer's money." Safran suggested one way to perhaps save money is to do a multiyear procurement on the F-35 instead of the current low-rate initial production lots.

Indeed, if the government were to agree to a large block buy on the F-35 fighter it could change the economics of the aircraft's costs. Analysts say a large block buy could give Lockheed the chance to do a better deal with its partner contractors and supply base through a commitment of several years of production.

Since his election, Trump has focused on defense costs. His comments have led to volatility in industry stocks such as Boeing and Lockheed.

"This is just classic political posturing on both sides," said Moody's analyst Russell Solomon, who covers the aerospace and defense industry. "It won't have a discernible adverse impact on the company. But it's an indication that everything is in negotiation these days."

Added Solomon, "The F-35 is critically important to the country in terms of global defense and NATO partners. A lot of interested parties here in making sure that this program continues and continues to grow as expected so that they can get the operating efficiencies that they've committed to."

In a written statement issued after her meeting, Hewson said: "I look forward to continuing to work together with President-elect Trump to drive the costs down on this critical military capability."

Hewson said the meeting with Trump was "outstanding" and plans to create "thousands and thousands" of jobs. She also said she gave the president-elect ideas on how to drive the program's cost down further.

Lockheed has an earnings call coming up later this month and they will likely get asked by analysts about the outlook for the F-35 given Trump's recent criticism.

"The question now is going to be what's your relationship with the president-elect and his transition team," said Safran.

According to Safran, Lockheed's CEO has "a very good reputation within government circles. She has very good negotiating skills."

Hewson inherited some of the problems with the F-35 from her predecessor. "She had to do a good job of smoothing over some ruffled feathers," Safran said.

The F-35 stealth fighter program is expected to cost more than $1 trillion over its projected 55-year life cycle. Lockheed said Wednesday it delivered the 200th operational jet of the F-35 to Japan, one of the nine original partner nations buying the aircraft.