(Editor's Note: This story has been updated with a statement from the F-35 Joint Program Office as well as comments from Lockheed Martin executives during the company’s second-quarter earnings call.)
After months of prolonged negotiations, Lockheed Martin and the F-35 Joint Program Office have struck a "handshake" deal on the next production lots for the fighter aircraft.
Reached Monday, the lot 15-17 agreement includes 375 jets, according to the JPO -- some 100 platforms fewer than the current production framework, though officials noted the total could change based on lawmakers’ actions in the budget process or orders from international partners.
The statement, which came in the hours before Lockheed’s second-quarter earnings call, didn’t include key details about the final prices, quantities or breakdown across countries, though a spokeswoman said that information would be shared once the Lot 15-17 contract is officially inked.
“In the midst of continued COVID-19 impacts and decreased F-35 quantities, the F-35 enterprise was able to achieve a cost per jet lower than record-breaking inflation trends,” Lockheed said in a statement. “This price also includes modernized hardware needed to power Block 4 capabilities, which ensure the F-35 remains the world’s most capable aircraft in production today.”
JPO officials labeled the contract award for lots 15 and 16 as “a high priority,” though the Defense Department’s statement noted that a lot 17 contract option wouldn’t come until fiscal year 2023, when that year’s budget is finalized.
"The F-35 is one of the most lethal, interoperable, and scalable capabilities in the DOD inventory. With the Lots 15-17 handshake in place, our plan is to expedite contract award and deliver additional F-35 capacity to the United States joint force and international partners,” Lt. Gen. Mike Schmidt, the F-35's new program executive officer, said in the announcement.
The handshake agreement concludes a dragged-out negotiation period, originally expected to be completed in October 2021, that both the Pentagon and Lockheed have characterized as difficult. Company executives pushed to ensure inflation and effects from COVID-19 were reflected in the final framework.
Executives had also long been anticipating the new contract would include a smaller overall buy compared to the 478 F-35s included in the Lot 12-14 contract. The former F-35 PEO confirmed that in comments to reporters in March, saying at the time that he expected the deal would include “on the order of 400 aircraft.”
“When you add all those things together, it's incumbent upon us to make sure we get an appropriate transaction or agreement for our shareholders and for the U.S. government and for our workforce as well,” CEO Jim Taiclet told analysts during the company’s first-quarter earnings call in the spring.
While no per-tail cost has yet been released, the former PEO, now-retired Lt. Gen. Eric Fick, previously warned of a “likely” increase from the current production contract, potentially pushing prices above the $80-million-per-jet threshold for the F-35A, the conventional-takeoff-and-landing model.
With the timing of the deal falling outside of the second quarter, Lockheed logged some $325 million in unrecognized sales and associated operating profits associated with keeping the production line moving, the company noted in a Q2 release Tuesday morning. But those funds are expected to be recovered once funding is received through the new contract, which the document states is expected in the current quarter.
The company’s Q2 sales hit $15.4 billion, compared with $17 billion in the second quarter of 2021, a drop company executives attributed during Tuesday’s earnings call to the timing of the F-35 contract and supply chain impacts.
As talks were continuing, Lockheed and the JPO reached a “production smoothing” agreement for F-35 deliveries last fall to mark the production line’s ongoing recovery from impacts of the COVID-19 pandemic. In all, Lockheed said it delivered 142 of the aircraft in 2021, surpassing the goal of 133 to 139 it outlined in the September arrangement.
The plan shows Lockheed is expected to deliver 151-153 jets in 2022 and 156 in 2023 “and for the foreseeable future” -- a figure executives have their confidence in despite the military services including just 61 F-35s in their fiscal year 2023 budget request.
That request largely impacts lot 17 aircraft, company executives noted during the earnings call today, though lawmakers have already signaled their support for increasing procurement across the services.
While Lockheed stands by the 156-per-year jet target in the “long term,” the company in a press release Tuesday morning noted it anticipates deliveries will hover in the 147-153-per-year aircraft range in 2023 and 2024, before recovering in 2025. That dip is in part due to the “reduced” quantities in the latest production lot, the release added, though it didn’t include specific figures.