Lockheed steps up multi-year sales pitch for JSF

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Lockheed Martin has formed a "tiger team" to study how to implement a new financing scheme to help international F-35 Joint Strike Fighter (JSF) customers afford the aircraft in the early years of production.

Six of the eight international JSF partners expect to take delivery of their first operational fighters in 2014, and Lockheed is proposing to have them sign multi-year procurement deals instead of making annual purchases.

Because the JSF's price tag is expected to rapidly decline after the first few years of production, a multi-year order allows the international customers to avoid paying the high upfront prices and amortise the cost per aircraft over the length of the order.

However, that approach may create a shortfall in revenue for Lockheed during the early years of production, so the tiger team will investigate how to keep the company's cashflows stable if the sale price does not match costs at the front end of the multi-year deal, says Tom Burbage, Lockheed's vice-president for JSF.

Burbage adds that Lockheed has no intention to absorb the upfront costs of a multi-year financing scheme internally, but a variety of financing and accounting methods exist to possibly address the revenue gap.

he tiger team was formed after the company briefed the multi-year procurement option at the programme's biennial conference of international partners in late July at BAE Systems' Samlesbury site in the UK.

"There's a lot of interest in doing that if it's possible," Burbage says. "There is no legal or contractual reason why we can't do that."

The US Congress typically buys new aircraft in annual lots until after the programme completes operational test and evaluation, which puts the proposal for an international multi-year procurement at least a year ahead of a potential US multi-year order.

The F-35 is expect to cost about $50-$60 million per aircraft at average prices over the life of a 20-year production programme.

The high cost of the JSF during the earliest years of production may continue to be a sensitive issue for the programme, and the House Appropriation Committee last week passed its version of a spending bill that may force Lockheed to lower its unit price.

The spending bill would provide $2.4 billion for the US Department of Defense to buy 12 F-35s, even though the Pentagon's budget request sought $2.6 billion for the same number of aircraft.

If the House version stands scrutiny by the Senate, Lockheed may be forced to produce a dozen aircraft at a $220 million loss.