Lockheed Martin (NYSE: LMT) has initiated talks with suppliers to generate $5 billion in cost savings on the F-35 program as the company negotiates a contract to produce the 11th batch of fighter jets, Bloomberg reported Tuesday. Julie Johnsson and Anthony Capaccio write Lockheed CEO Marillyn Hewson, also an inductee into Executive Mosaic’s Wash100 for 2017, told reporters Tuesday that President Donald Trump and his administration “put a sharper focus on price.”
Marillyn Hewson
Hewson’s statement came three months after she offered Trump her “personal commitment” to reduce the F-35 program’s cost and a month after the company finalized an $8.5 billion contract with the Defense Department to deliver 90 lot 10 F-35s.
Bruce Tanner, chief financial officer at Lockheed, said in an interview that he thinks Trump’s presence “creates momentum to get Lot 11 done quicker than we have in the past.”
The report said Trump’s proposed budget for fiscal 2018 included the procurement of additional F-35s for the U.S. Air Force.
An official with Lockheed said Tuesday the lot 11 agreement may place an order for up to 130 fighter jets from the company, the report added.
Getty Images
A F-35 fighter jet take-offs for a training mission at Hill Air Force Base on March 15, 2017 in Ogden, Utah. Lockheed Martin CEO Marillyn Hewson said Tuesday the company is seeing a "President Trump effect" with NATO members starting to "step up their own defense spending."
And Hewson said the expected uptick from NATO allies follows "one of the most complex geopolitical volatile environments" she's ever seen. President Donald Trump and Defense Secretary James Mattis have been pressuring European member nations such as Germany to increase their share of defense spending. Trump claimed last week that Germany owes NATO and the U.S. "vast sums" of money for defense, although that assertion was rejected by the Germans.
Of the 28 member countries, only five — the U.S., U.K., Poland, Greece and Estonia — meet the Western alliance's target of spending at least 2 percent of gross domestic product on defense.
Germany's defense spending last year was about 1.2 percent of its GDP, and although the finance ministry expects that figure to rise slightly by 2018, it will still below the 2 percent goal.
Kevin Lamarque | Reuters
Marillyn Hewson, CEO, Lockheed Martin
Hewson said if all the NATO European members reached the 2 percent defense spending target that could result in a $100 billion increase in spending on defense. "This is significant," she said.
Lockheed, the maker of the F-35 Joint Strike Fighter, had about 27 percent of its total sales in 2016 from international customers. And more than 40 percent of its new business was international, according to Hewson.
"The largest driver of international growth will be F-35," she said. She estimated that about 50 percent of all F-35 orders over the next five years will come from international customers.
Trump has been critical of the F-35's price and has suggested possibly buying a "comparable" F/A-18 Super Hornet fighter from rival defense giant Boeing. The F-35 Joint Strike Fighter is a program with three distinct variants built for the Air Force, Navy and Marines.
The Pentagon is believed to be considering buying more F/A-18 fighters to replace some F-35C planes, the Navy's variant.
Even so, a deal announced last month by the company for a 10th batch of F-35s showed a $728 million savings in the total price when compared with the prior lot. In particular, the Pentagon's price of the F-35A, or the Air Force variant, fell below $100 million for the first time.
"President Trump made clear that he and the administration will ensure that the government is a smart buyer," Hewson said Tuesday. She added that in the "positive and constructive dialogue" she's had with him over the past few months, she's been "able to communicate Lockheed is aligned with that."
Lockheed set a goal to save F-35 customers "more than $5 billion," Hewson said. What's more, she said the company agreed to a target of $85 million or less by 2019 on the aircraft.
Meantime, Hewson also was generally upbeat about the outlook for U.S. defense spending.
"We're seeing a new willingness and resolve to increase investments in defense," the CEO said. "Although the path ahead on the federal budget remains complicated, we are optimistic."
Overall, the CEO also indicated she's "more optimistic than ever for our company's growth prospects."
Hewson also applauded the administration's efforts to lower corporate taxes and ease regulations on business.
"These policy discussions are especially important to our industry, aerospace and defense," Hewson said, adding that the industry represents about 10 percent of U.S. exports and employs about 2 percent of the total workforce directly.
Elsewhere, Hewson said the company's Sikorsky integration has largely been completed. The Bethesda, Maryland-based company acquired Sikorsky for about $9 billion in late 2015.
Some criticized Lockheed for the deal, saying the defense giant had overpaid for the commercial and military helicopter business.
Nonetheless, Hewson said she expects Sikorsky sales to grow, although she conceded that the commercial side of the business was still feeling the effects of being tied to the oil and gas industry.
"While it's taking longer than expected, we are confident that the industry will eventually recover," she said. —Written by CNBC's Jeff Daniels, with reporting from CNBC's Morgan Brennan
TOPICS:F-16Global Hot SpotsLockheed MartinPoland
Google BookmarkFacebookTwitterPrintMore Two F-16 Fighting Falcons from the South Dakota Air National Guard arrive at Lask Air Base, Poland, Sept. 19, 2016, after completing a training mission. In a reversal, Polish government doesn't plan to buy America's used F-16s to replace its aging Russian fighters, officials said. (U.S. Air National Guard photo/Amy Rittberger)
POSTED BY: RICHARD SISK MARCH 24, 2017
The Polish government has reversed course on buying used American-made F-16A/B Fighting Falcons to replace its aging Russian Sukhois and MiGs fighter jets.
In January, Deputy Minister of National Defence Bartosz Kownacki said Poland was considering buying 50 to 100 F-16s made by Lockheed Martin Corp., but he told a parliamentary committee earlier this week that the deal for second-hand jets is off the table.
“We are not going to buy used older versions of the F-16,” Kownacki said.
The minister didn’t give numbers but said the costs of modernizing the used F-16s would be prohibitive. The F-16s had been intended to replace Poland’s Sukhoi Su-22s and Mikoyan MiG-29s.
In January, Polish Defense Minister Antoni Macierewicz indicated his country was leaning towards the F-16s for its air force. “We are considering strengthening the capacities of our aircraft fleet and, to be exact, our F-16s,” he said at the time. “This issue is currently under analysis.”
At the same time, Kownacki told the local daily Dziennik Gazeta Prawna, “We are performing analyses whether a purchase of used F-16s would be operationally and economically effective. It is certain that we need new fighter jets.”
A possible alternative would be to buy new F-35 Joint Strike Fighter, but Kownacki said in January that he believes the purchase of F-35s is “not economically justified. We will have to make a decision.”
In his statement to parliament this week, Kownacki said, “The analysis of purchasing of F-16A/B aircraft were carried out by the Ministry of National Defence, the general staff of the Polish armed forces and the armament inspectorate, and after that, it was clear that this was not the right direction.”
Gen. Jan Sliwka, deputy commander-in-chief of the Polish armed forces, said officials were surprised by the high costs paid by Romania to buy and upgrade used F-16A/Bs from Portugal, FlightGlobal reported.
“It cost more than the price of the same number of new aircraft,” Sliwka said.
Poland currently has 48 F-16C/Ds, and it will be possible to operate those aircraft for at least another 30 years with upgrades, he said.
Lockheed Martin (NYSE: LMT) has initiated talks with suppliers to generate $5 billion in cost savings on the F-35 program as the company negotiates a contract to produce the 11th batch of fighter jets, Bloomberg reported Tuesday.
Two F-16 Fighting Falcons from the South Dakota Air National Guard arrive at Lask Air Base, Poland, Sept. 19, 2016, after completing a training mission. In a reversal, Polish government doesn't plan to buy America's used F-16s to replace its aging Russian fighters, officials said. (U.S. Air National Guard photo/Amy Rittberger)
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