Lockheed (LMT) Wins Deal To Aid F-35B Jets' Flying Permit

Lockheed Martin Corp.'s (NYSE:LMT) Aeronautics business division has won a modification contract to support the first of class flying trials for F-35B aircraft and release military permit to fly the same from Queen Elizabeth class aircraft carrier. Notably, these jets will be used by the U.K. government.

Contract Details

Valued at $11.6 million, the contract has been awarded by the Naval Air Systems Command, Patuxent River, MD.

The work is scheduled to be completed by March 2018 and will use international partner funds. While majority of the work related to this contract will be carried out in Fort Worth, TX, the rest will be performed in multiple locations across the United States.

F-35 Attributes

Lockheed Martin’s F-35 Lightning II is a single-seat and single-engine 5th Generation fighter aircraft. It comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment.

Markedly, the F-35B short takeoff/vertical landing (STOVL) variant is the world’s first supersonic STOVL stealth aircraft. It is designed to operate from a range of air-capable ships near front-line combat zones. Also, it can take off and land conventionally from longer runways on major bases.

Also, the F-35 program has been supported by an international team of leading aerospace majors with Lockheed Martin being the primary partner. While, Northrop Grumman Corp. (NYSE:NOC) contributed its expertise in carrier aircraft and low-observable stealth technology to this program, BAE Systems (LON:BAES) plc’s (OTC:BAESY) short takeoff and vertical landing experience as along with air systems sustainment supported the jet’s combat capabilities. Also, Pratt & Whitney, a unit of United Technologies Corporation (NYSE:UTX) , provided F-35s with the F135 propulsion system, which is the world's most powerful fighter engine.

Our View

We remind investors that despite offering superior air security and stability, the F-35 program has been facing some engine-related technical issues for the last few years. Additionally, it has been repeatedly criticized by President Trump on being an overtly expensive project.

Finally, Lockheed Martin inked a deal worth $8.5 billion with Pentagon this February with the intent of delivering 90 F-35s of the 10th Lot at a historically low rate either forced by Trump’s intervention or to keep management’s earlier promise to cut down cost by 6–7%.

Going forward, Lockheed Martin's management is likely to adopt a cost-saving initiative to lower sustainment costs for F-35 by 10%, over the next couple of years. This, in turn, is anticipated to result in cost savings of $1 billion over a five-year period.

Moreover, we believe that the recent contract win will enable the company to take a step toward achieving its goal and allow it to provide more of these combat aircraft at an efficiently reduced rate.

Meanwhile, Lockheed Martin seems to enjoy steady flow of contracts from the Pentagon since reduction of its F-35 price. In July, it won a modification contract, worth $5.6 billion, to offer low-rate initial production of the 11th lot of F-35 Lightening II Joint Strike Fighter.

In the upcoming decades, with the U.S. government expecting to spend approximately $400 billion for the development and purchase of 2,443 F-35 jets, Lockheed Martin is trying its best to effectively reduce the price of this program. Also, the government is likely to place larger orders and boost the company’s profits in the near term.

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