Northrop Grumman has completed negotiations with Lockheed Martin on pricing for low-rate initial production (LRIP) lots 9 and 10 of the F-35, suggesting the prime contractor may be close to wrapping up a 15-month negotiating period with the US joint programme office (JPO), Northrop chief executive Wes Bush says.
Northrop’s supplier deal precedes the resolution of the LRIP 9/10 contract between Lockheed as the prime contractor and the JPO, Bush adds.
“We have completed our negotiations on lots 9 and 10 with Lockheed, which is typical for a prime contractor to want to lock down its supply chain as it finishes off negotiations with a customer,” Bush told analysts on a third quarter earnings call on 26 October.
The JPO confirms that negotiations remain ongoing with Lockheed, but offers no comment on whether they are close to reaching a conclusion. Lockheed also says discussions are continuing with the JPO.
Lockheed’s part of the LRIP 9/10 deal should have been signed last November to keep the contractual terms roughly up to date, but undisclosed disagreements have extended the talks.
Bush acknowledged some impatience with the progress of the LRIP 9/10 negotiations. “We’ve seen the negotiations take longer than anyone would want,” he says. “There’s opportunities here for process improvement as we go forward."
Aside from Lockheed and engine supplier Pratt & Whitney, Northrop has probably the biggest stake in the F-35 programme. The company’s Aerospace Systems sector supplies the center fuselage and the Missions Systems sector provides the radar, distributed aperture system and the communications/navigation/identification friend-or-foe (CNI) suite. The F-35 represents 7% of the company’s revenues, with two-thirds of the amount coming from the fuselage portion, Bush says.
But Northrop has not been satisfied with the programme’s contributions to the bottom line, so far. Operating margins on Northrop’s F-35 deliveries are below where the company would normally expect for a programme at this stage in the production cycle, Bush says. The terms of the newly-signed LRIP 9/10 deal with Lockheed do not significantly improve upon that performance, he adds.
Northrop expects profits on the F-35 programme to improve as full rate production begins in a few years, implying significantly higher volumes that allow suppliers to build parts more efficiently, he says.
CORRECTION: The article has been updated to correct a description of the LRIP 9/10 deals as a "two-year block buy".