Lockheed Martin could see a loss on one of its contracts for a classified program in its Missiles and Fire Control section as the effort goes into production, Chief Financial Officer Jay Malave said Thursday at the Cowen Aerospace/Defense and Industrial Conference.
The MFC section is expecting a declining margin in 2023 compared to 2022 -- down to 13.7% from 14.5% -- Malave said, due primarily to this classified contract. He added the margins could step down another 50 to 100 basis points from 2023’s margin.
“We’re going from a low-margin development contract to essentially a negative-margin production for a period of time,” Malave said. “That’s what’s driving MFC’s margins to want to continue to slide down.”
Incremental demand for MFC products has the potential to “dampen the headwinds” of this production contract, Malave said. Better estimates on the margins will be determined over the summer, Malave said, as Lockheed wraps up the third quarter and begins looking at 2024.
Malave was asked about potential losses on fixed-price contracts after Northrop Grumman announced in its year-end earnings report that it would sustain “possible” but not “probable” losses on the low-rate initial production phase of the B-21 Raider bomber.
Because of increasing inflation rates, many suppliers are opposing new long-term fixed-price contracts, Malave said.
“They want some type of escalation clause tied to it, and rightfully so,” Malave said of the suppliers. “It’s hard to criticize that type of request.”
To mitigate risk for itself, Lockheed is working with the Defense Department for “a trade-off on our contract with our customer to flow through the escalation clause,” he said.