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Lockheed wins $8.2 billion F-35 contract after Trump intervenes

Lt. Col. Christine Mau, 33rd Operations Group deputy commander, navigates an F-35A through the "bird bath" at Eglin Air Force Base, Fla., on May 5, 2015. The Pentagon announced Friday, Jan. 27, 2017, that Defense Secretary Jim Mattis has ordered reviews of Lockheed Martin's F-35 Joint Strike Fighter and plans for Boeing to build new Air Force One presidential aircraft.

MARLEAH ROBERTSON/U.S. AIR FORCE

By TONY CAPACCIO AND JULIE JOHNSSON | Bloomberg | Published: February 3, 2017

The White House announced a contract for 90 F-35 jets from Lockheed Martin Corp. valued at as much as $8.2 billion, boasting of savings after President Donald Trump chided that the Pentagon's costliest program was "out of control."

Based on the per-plane cost, the savings will be $728 million compared with the previous contract, according to a Pentagon statement. That exceeds the $600 million in savings that Trump boasted of achieving after criticizing the fighter's cost and intervening with Lockheed Chief Executive Officer Marillyn Hewson.

"Another big win the president has delivered on for U.S. taxpayers," White House Press Secretary Sean Spicer told reporters at midday Friday. The announcement from the White House press room marked a striking change from the Pentagon's usual practice of issuing major contracts in bureaucratic statements after the close of New York trading.

The contract has been under negotiation for more than a year, and Defense Department officials were already working toward the reduction in cost before Trump tweeted his dissatisfaction.

Air Force Lt. Gen. Chris Bogdan, the Pentagon's F-35 program manager, told reporters Dec. 29 that the 10th contract would be valued at about $8 billion and that the 90 aircraft would be progressively cheaper than the eighth and ninth batches, in part because of Pentagon negotiations and in part because of economies of scale.

The new contract is the 10th tranche in a $379 billion program. At least $2.1 billion of the contract has already been advanced to Lockheed, including $1.35 billion in November, before the expected announcement.

Lockheed gained less than 1 percent to $253.92 at 12:27 p.m. New York time.

The final price for the Air Force's F-35A version in the tenth contract is $94.6 million including the aircraft, engine and fee, 7.3 percent less than in the previous tranche.

Trump had assailed the weapon program's costs in a series of Tweets since being elected president in November before boasting at a White House meeting with small business owners that "we cut approximately $600 million off the F-35 fighter."

But Lockheed officials had already projected that costs for the highest-volume variant of the F-35 would fall under $100 million per plane as the defense contractor works with its suppliers to ramp up production and eliminate costs. The Bethesda, Maryland-based company is on track to make the fighter for as little as $85 million per jet by 2019, Hewson reiterated during a Jan. 24 earnings call.

The F-35 is Lockheed's largest source of profit. Its cutting-edge technology has been undercut by malfunctions, prompting the Obama administration's top weapons tester, Michael Gilmore, to warn Congress in January of "significant, well-documented deficiencies in critical combat capabilities."

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