Lockheed Martin and Raytheon prepare big production changes to adjust to America's dispute with Turkey over a Russian missile deal

Lockheed Martin
The F-35 Lightning II production line at Lockheed Martin's facility in Fort Worth, Texas. 

WASHINGTON — American defense firms Lockheed Martin and Raytheon are preparing to make massive adjustments to their production processes as the U.S. tries to pressure Turkey not to follow through with a multibillion-dollar deal to buy a Russian missile system, according to multiple people familiar with the matter.

If Turkey goes through with the Russian deal, Lockheed Martin would have to rework its supply chain on components for the F-35 fighter jet, while also making changes to its production schedule. Yet if Turkey abandons its deal with Russia, Raytheon would reorganize the Patriot missile defense system production schedule to guarantee that Turkey could receive the missile system within a faster time frame.

As it stands, Turkey faces removal from the F-35 program, forfeiture of 100 promised F-35 jets, cancellation of a Patriot missile deal and the imposition of U.S. sanctions as well as potential blowback from NATO if the deal with Russia is completed. Lockheed Martin makes the F-35, while Raytheon produces the Patriot system.

"The ball is very much in their court," a U.S. defense official familiar with the matter told CNBC. "There is a lot to lose on the line and Turkey should know that these aren't idle threats."

Turkey is slated to receive the Russian-made S-400 missile system later this year after brokering a deal reportedly worth $2.5 billion with the Kremlin in 2017.

Turkey has helped finance Lockheed Martin's F-35 program, America's most expensive weapons system and the world's most advanced fighter jet.

For Lockheed Martin, the adjustments include replacing Turkey's role in manufacturing elements for the F-35's fuselage and landing gear. Therefore, a new supplier would have to take over making those specific jet components. Additionally, the 100 F-35 jets Turkey hoped to add to its budding arsenal will be shuffled in the company's intricate production schedule as to ensure the defense giant's assembly line will hum along without skipping a beat.

On Thursday, the head of the F-35 program at the Pentagon told lawmakers that Turkey's removal would impact the aircraft production rate and strain the jet's intricate global supply chain.

"The evaluation of Turkey stopping would be between 50 and 75 airplane impact over a two-year period," Navy Vice Adm. Mat Winter told members during a House Armed Services subcommittee hearing.

"From a timeline we would see within 45 to 90 days an impact of the slowing down or stopping of those parts to the three production lines," Winter said, adding that Turkey produces approximately 7 percent of the jet's parts.

Sergei Malgavko | TASS via Getty Images
A Russian S-400 surface-to-air missile system.

In September, CNBC learned that Turkey was in the process of constructing a site for the Russian S-400 system despite warnings from the United States to not buy the platform, according to a source with firsthand knowledge of an intelligence report.

In multiple efforts to deter Turkey from buying the S-400, the U.S. State Department offered in 2013 and 2017 to sell it a Patriot missile system. Ankara passed on Patriot both times because the U.S. declined to provide a transfer of the system's sensitive missile technology.

The intelligence assessment included satellite imagery of a concrete launch facility as well as bunkers, according to the source, who spoke on the condition of anonymity. The new construction fits the pattern for Russia's S-400 surface-to-air missile system, the source indicated.

The S-400 missile system, equipped with eight launchers and 32 missiles, is capable of targeting and collecting valuable technical intelligence from the F-35. Similarly, the S-400 cannot be operated alongside NATO defense systems.

The Turkey-U.S. military relationship took more anxious turns Monday, when the U.S. halted delivery of two F-35 fighter jets to Ankara and an agreement to sell the Patriot system to Turkey expired.

On Tuesday, Acting Defense Secretary Patrick Shanahan said he expected the dispute with Turkey over its planned purchase of Russia's S-400 system to be resolved.

"I expect we'll solve the problem so that they have the right defense equipment in terms of Patriots and F-35s," Shanahan told a small group of reporters at the Pentagon.

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