Lockheed Martin expects to strike a deal with the U.S. government by the end of the year to build the 18th and 19th lots of F-35 Joint Strike Fighters, company officials said in an earnings call Tuesday.
But the delay in reaching the contract for upcoming batches of F-35s — along with multi-million dollar payments the government is withholding from Lockheed until the newest fighters can fly in combat — is costing the company hundreds of millions of dollars.
Lockheed’s aeronautics sector reported $6.5 billion in sales in the third quarter of 2024, a 3% decline from one year earlier, as well as a 2% decline in aeronautics profit. Officials said higher volume on C-130 aircraft and belt-tightening on spending helped it absorb most of the F-35 losses.
The U.S. government at the end of 2023 authorized Lockheed to start initial work on lots 18 and 19, and awarded the company an advance acquisition contract to fund production and ensure they didn’t fall behind schedule.
But that initial funding has run out, Lockheed said, and the company said it incurred about $700 million in delayed revenue on the F-35 in the third quarter.
The earnings call with investors provided more insight into the financial repercussions Lockheed is facing as it tries to recover from a year-long F-35 delivery delay, stemming from software and hardware troubles with an upgrade known as Technology Refresh 3, or TR-3.
TR-3 is meant to give the jets improved displays, computers and processing power, beginning with lot 15. But software integration problems and hardware delays meant the upgrades did not work as intended, and the government refused to accept jets intended to have TR-3.
Lockheed developed an interim version of the software that allows TR-3 jets to fly combat training missions, which satisfied the government enough to resume deliveries this summer. But those jets are not yet able to fly in combat, and won’t be until 2025.
Lockheed delivered its first 48 F-35s of the year in the third quarter, chief executive Jim Taiclet told investors, and expects to deliver between 90 and 110 jets by the end of 2024.
That is less than the roughly 156 jets Lockheed typically aims to produce and deliver annually, and about in line with the 98 fighters the company delivered in 2023, as the delivery halt began.
Lockheed expects to take a $600 million hit in 2024 on the delays associated with lots 15 through 17 jets, chief financial officer Jay Malave told investors. But he expects the company to recover those costs over the next few years.
While Lockheed Martin won’t deliver its full complement of F-35s in 2024, Malave said the company expects to deliver about 180 annually over the subsequent three years, as it works through its backlog.
Malave also expects the government to start releasing withheld payments starting next year, as TR-3 improves. The F-35 Joint Program Office is withholding about $5 million in payments for each jet until they are fully combat-capable. About 95% of the new TR-3 jets’ combat capabilities have been validated, Taiclet told investors.
Malave expects Lockheed to receive about $300 million to $400 million more in 2025 as it delivers more jets and withheld payments from the government start to shake loose, with more to come in 2026.
“Cash collections will smooth out over this period of time,” Malave said.
But some lawmakers have lost patience with Lockheed and its difficulties with the F-35.
Reps. Matt Gaetz, R-Fla., and Seth Moulton, D-Mass., on Tuesday introduced a resolution that would say Lockheed and its subcontractors have failed to deliver what the company promised on the F-35, and that the Pentagon has failed to hold the program accountable.
The proposed resolution outlines a litany of shortcomings with the F-35, most recently its TR-3 troubles and the delays in future upgrades known as Block 4 that are now resulting.
“Its unacceptable to leave the American taxpayer on the hook for a broken system and allow appropriators in Congress to divest funds from service members’ child care to invest in broken F-35s,” Gaetz said. “We must stop rewarding failure and prioritize our military families.”
