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F-35 and Sikorsky propel Lockheed earnings growth

Lockheed Martin boasted a 15% sales growth compared to their third quarter last year, driven by the company’s acquisition of Sikorsky and higher F-35 deliveries.

Increased aircraft production and sustainment activities for the F-35 programme garnered Lockheed $300 million in net sales. That boosted the company’s aeronautics division by $267 million, or about 7%, this quarter compared to the same time last year. But that boost was tempered by decreased sustainment activities for the C-5 programme, the company says in a statement.

The Sikorsky acquisition served as a shot in the arm to Lockheed’s rotary and mission system division, which saw net sales in the third quarter of 2016 increase by $1.2 billion, or 55%, compared to last year.

The F-35 programme ramp up also brought higher than expected growth on the sustainment side, Lockheed chief financial officer Bruce Tanner says. Lockheed initially set a conservative forecast for their sustainment activity, but since installing the aircraft and mission equipment at several bases, the company has a more accurate projection going forward.

“I think the wild card here is when I said that I didn’t expect significant amount of growth on F-35, particular sustainment,” he says. “It’s amazing growth on the sustainment program compared to what I previously thought.”

But not all is rosy for Lockheed’s F-35 programme. Lockheed was forced to fix fielded and production aircraft after a supplier delivered subpar insulation tubes for the fighter jet. The supplier used the wrong coating for the insulation which deteriorated when it met fuel. The crumbling insulation clogged the vent between the wing tank and fuselage tank, but does not affect the engine’s performance.

That will cause a lighter than expected F-35 delivery this year while Lockheed fixes the tube issue, Tanner says. Lockheed expects to be back on their contractual schedule by the end of 2017, he says.

Meanwhile, Lockheed and the US government continue protracted negotiations over low-rate initial production lots 9 and 10. While Lockheed received government funding for LRIP 9, the company says the funding was not sufficient and hopes negotiations will wrap soon. Lockheed chief financial officer Bruce Tanner says negotiations have been hindered by the typical sticking points of any contractual negotiation, including the cost, terms and conditions.

“We haven't really reached closure on any of those,” he says. “But we’re making progress and we’re still hopeful we’ll close soon.”

While the F-35 programme has expanded Lockheed’s international growth, the company is eyeing other international opportunities outside the fighter jet programme, including missile defense and rotary aircraft. Lockheed chief executive Marillyn Hewson says the company is positioning itself for more growth in missile defense the Middle East. The company is also seeing growing interest from Poland in its helicopters, as well as continued interest in the C-130J from France and Germany, Hewson says.

Talks over an F-16 order from Bahrain are heating up as well, after the US Congress agreed to examine the sale of fighter jets to the country, along with Qatar and Kuwait. If the Bahrain sale goes through, it would extend the F-16 line by another year, Tanner says.

“I think on the Bahrain order, there’s at least consideration,” Tanner says. “It’s not finalised and none of the numbers I talked about in terms of growth going forward assume the Bahrain aircraft on the F-16 line.”

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