WASHINGTON – President Donald Trump announced on Monday that the latest contract with Lockheed Martin for America’s priciest weapons system – the F-35 – will be reduced by $600 million.
“They were having a lot of difficulty. There was no movement. And I was able to get $600 million approximately off those planes. So I think that was a great achievement,” Trump told reporters.
“We will be savings billions and billions and billions of dollars on contracts,” Trump added.
To date, the US is slated to buy approximately 2,443 F-35s at an acquisition cost of $379 billion.
The $600 million is to be shaved off of the 10th Low Rate Initial Production (LRIP-10) contract, which is worth an estimated $9 billion for the delivery of 90 F-35s.
And though it would appear that Trump – after publicly criticizing the crown jewel in the defense giant’s portfolio – is the reason for the savings, the price reduction was in the works.
Rewinding the tape back to a December 19 briefing, Lt. Gen. Chris Bogdan, head of the F-35 Joint Program Office, said the price for LRIP-10 contract would be reduced “significantly.”
“I fully anticipate that when we do settle LRIP-10 you’ll see all three variants, the A, the B, and the C come down in price significantly,” Bogdan said. And by “significantly” Bogdan added that he believes “somewhere on the order of 6 to 7 percent per airplane, per variant.”
The finalized price forLRIP-9, which took 14 months of negotiations between the Department of Defense and Lockheed Martin, for 57 F-35 jets was valued at $6.1 billion. The unit price for an F-35A in current year dollars (including aircraft, engine, and fee) is $102.1 million. If you take the 6 to 7 percent reduction into account, the savings on LRIP-10 are ballpark to the price point laid out by the Joint Program Office back in December.
Val Insinna from Defense News jotted down the math:
I did some math on the plane that seems to show that a $600M cut to F-35 LRIP 10 pretty much adheres to the JPO's 6-7% projected reduction. pic.twitter.com/ab1DTi5Jcy
— Valerie Insinna (@ValerieInsinna) January 30, 2017
In short, the wheels were already in motion.
And despite significant snags in developing the fifth-generation jet, the Pentagon’s top weapons supplier beat on both the top and bottom lines in its quarterly earnings.
For the quarter that ended December 31, Lockheed Martin earned an adjusted $3.25 per share on revenue of $13.75 billion. Analysts were looking foradjusted EPS of $3.05 on revenue of $13.03 billion.
Considered a bellwether for the US defense sector, Lockheed Martin said net earnings in Q4 rose to $959 million compared to $817 million, in Q4 of 2015.
Sales in Lockheed Martin’s aeronautics business, the company’s largest segment, rose 23 percent to $5.41 billion, compared to the same period in 2015, thanks to an increase in F-35 sales.
Lockheed Martin CEO Marillyn Hewson, who spoke with Trump twice prior to his inauguration, said the F-35 is “absolutely unmatched” in capability during an earnings call on Tuesday.
“I mean, it’s basically a game changer,” Hewson said. “It brings forour country, for our military as well as for our allies around the world an unmatched capability – absolutely unmatched. And recognizing that, his [Trump’s] focus is on how do we drive that the cost down aggressively.”
Adding that the meetings with Trump have been “very productive,” Hewson noted that the defense giant has a lot of ideas on how to cut costs in the future.