Lockheed Martin has run out of advanced procurement money for C-130J and F-35 aircraft being procured by the US military and is paying out of pocket to support the supplier base.
The company disclosed in its third-quarter earnings that the Pentagon owes it approximately $750 million for long-lead parts; money that has been paid out-of-pocket while contract negotiations wrap up for the upcoming C-130J Multiyear II deal, and the ninth and 10th low-rate F-35 production orders.
Lockheed expects to be reimbursed later this year after requesting payment from the Pentagon, but the issue will trigger a range of procedural notifications and contractual changes.
“In both cases we ran out of funding provided, in both cases we asked for additional funding, and in both cases we were told none would be provided until those contracts were actually negotiated,” says Lockheed chief financial officer Bruce Tanner. “We have elevated this to very senior levels at the Pentagon. We’ve been told funding will be provided on both those programmes, but it does require a lot of paperwork, notifications, contract modifications and the like to make that happen.”
US Air Force
Lockheed has secured a “handshake agreement” with the US Air Force for the C-130J contract, which buys 78 aircraft for the US military and includes five options for Coast Guard HC-130Js.
F-35 LRIP 9 and 10 have been in negotiation for some time, and should be finalised later this year.
The company says if it didn’t foot the bill for long-lead parts, there would have been widespread disruption to the supply base, including potential furloughs and layoffs until the deals closed.
Lockheed expects to end the year with $80 billion in backlog, assuming those deals are reached.
The F-35 assembly plant in Fort Worth, Texas, is on track to deliver 45 aircraft in 2015, which represents a 25% increase over 2014, the company says.
Going into 2016, Lockheed expects the F-35 programme to grow by “double digits” with higher profit margins. The fighter aircraft generates almost 20% of Lockheed’s corporate revenue, with about 140 aircraft delivered to date.
Tanner expects to make less profit on the five-year C-130J procurement deal, and the company is promising a 10% savings to the US government over prior production contracts. The first aircraft is already well into production for delivery in 2016.