US defence manufacturer Lockheed Martin absorbed “significant” financial losses during the recent second quarter, driven in part by a secretive aircraft programme.
During a quarterly earnings call on 22 July, Lockheed executives revealed that a classified contract within the company’s aeronautics division absorbed $950 million in penalty charges during the three month period between April and June.
That hit, along with financial losses on two international helicopter programmes within subsidiary Sikorsky, dragged Lockheed to a $1.6 billion overall loss on the quarter.
“I acknowledge the losses on this classified programme are significant,” says Lockheed chief executive James Taiclet. “We are taking these charges very seriously.”
Little is being revealed about the loss-generating aircraft programme, due to the project’s highly classified nature.
However, Taiclet confirms the programme is a fixed-price development contract for the US government with a multi-year runway.
He also expresses long-term optimism about the programme, describing the secretive technology alternatively as “game changing” and “magical”, without offering specific details.
Newly installed chief financial officer Evan Scott says the penalty charges stemmed from “design, integration, and test challenges” on the programme, along with “other performance issues”.
The hurdles were first identified during an end-of-year review in 2024.
“Those challenges and performance issues continued into 2025 and had a greater impact on scheduling costs than previously estimated,” Scott notes.
“Based on this review and ongoing discussions with the customer and teammates, we made a significant change to our processes testing approach, resulting in a significant update to the programme’s schedule and cost,” he adds.
Those penalties were assessed under the classified contract’s fixed-price structure, which generally speaking allow for little deviation from initially agreed-upon cost figures and progress milestones.
Taiclet says he hopes the Pentagon will be open to restructuring the contract in a way that allows for a more sustainable development path, while still meeting national security commitments.
“The customer is aware of, and will become increasingly aware after today, of the cost that this programme is putting on the company,” the Lockheed CEO says. “And I think they’re open to figuring out ways to make it more reasonable.”
While Taiclet has not revealed the exact length of time that Lockheed is expected to be under the current onerous contract structure, he confirms that the latest $950 million penalty charge was calculated based on “numerous future years of fixed-price contract commitments”.
“Unfortunately, due to the nature of the classification, we can’t say how many years that is, but… I’ll say it is not unlimited,” he adds.
Despite the programme’s current financial challenges, the former US Air Force transport pilot remains bullish on the potential for the secretive new technology, which Taiclet describes as something of “magical status”.
“I can assure you that it’s going to be in high demand for a very long time, well beyond the fixed price commitments I would expect,” he says.
Whatever the true nature of the secretive aeronautics effort, it is not a sixth-generation fighter for the US Air Force (USAF) or US Navy.
Lockheed was eliminated from both of those contests, losing out to Boeing in the final decision for the USAF’s Next Generation Air Dominance programme, and being dropped early from the navy’s now-floundering F/A-XX effort.
Addressing those losses, Taiclet says Lockheed is refocusing its efforts on the hot-production F-35 and developing a path to bring that fighter to 80% of sixth-generation capability at half the cost.
