Lockheed 'very close to a deal' on latest F-35 contract with Trump administration

F-35 aircraft aboard the USS America, an amphibious assault ship for the Navy.
Andy Wolfe | US Navy

Lockheed Martin is "very close to a deal" with the government for the 10th delivery lot of its F-35 stealth fighter, an aircraft that President Donald Trump has publicly criticized as being too expensive.

CEO Marillyn Hewson spoke about the pending deal on the defense contractor's fourth-quarter earnings call Tuesday, calling conversations she's had with the president "very productive."

"President Trump recognizes that the F-35 is a very large program — the largest program in the Department of Defense," Hewson said. "He wants to make the sure that the American taxpayer is getting the lowest possible cost on the program."

Hewson maintained that these cost reductions would not be about "slashing our profit" or hurting the company's margins. Instead, she reiterated that Lockheed has been bringing down the cost of the F-35 aircraft, and is moving forward with a "sustainment cost reduction" that will reduce costs in the supply chain and manufacturing.

Moreover, the company is working to take costs out of the materials used as the F-35 program moves along.

Marillyn Hewson, chairman, president and chief executive officer of Lockheed Martin Corp.
Simon Dawson | Bloomberg | Getty Images

"I've also had the opportunity to share with him [Trump] things that the Department of Defense can do and how they might buy the aircraft differently in the future that might help continue to drive the costs down," Hewson said. "He welcomed that discussion."

Still, the company's shares were down some 2 percent in early afternoon trading, after the company issued 2017 guidance that fell short of Wall Street consensus estimates. That shortfall was the result of pension impacts.

The 10th lot of the F-35 aircraft represents a total of 90 planes. Lockheed projects the F-35A aircraft's current per-unit cost of about $100 million will fall to $85 million by the time it reaches the 13th lot of the so-called low-rate initial production. The current production of the aircraft is in lot 10.

Hewson referred to the F-35 program as "a growth engine" for Lockheed, saying, "We continue to see growing international demand for it."

"It's not just the program of record that we have with the U.S. government on the services that are buying the aircraft and the international partners that are already signed up, but many other countries are showing interest in the program," she said.

There's still a possibility Lockheed could see some impact if the Pentagon buys more of Boeing's F-18 fighter jets, as the president has suggested. Trump has expressed interest in the older F-18 fighter because of its lower cost, although the Boeing-produced plane doesn't have all the high-tech stealth capabilities of the fifth-generation F-35 planes.