Lockheed Martin, the prime contractor for the F-35 program, is preparing for potential shifts in defense spending under the incoming Trump administration, as noted by the company’s Chief Financial Officer, Jay Malave. During his remarks at the UBS Global Industrials & Transportation Conference, he acknowledged that new administrations often bring different priorities, which may affect existing defense programs. He assured investors that Lockheed Martin is adept at adapting to such changes.
Malave’s comments come in the wake of criticism from Elon Musk, a prominent adviser to President-elect Donald Trump, who has publicly labeled the F-35 as obsolete in the context of modern warfare dominated by drones. Musk highlighted concerns about the F-35’s relevance by sharing a video of Chinese drones and questioning the decision to continue developing manned fighter jets.
While acknowledging that some defense programs may face budget cuts, Malave expressed uncertainty regarding which specific programs could be affected. He mentioned that there could be an increase in the overall defense budget due to possible cancellations or curtailments of less prioritized programs. However, without a clearer picture from the incoming administration, speculation remains challenging.
The influence Musk may have on the F-35 program is still uncertain, particularly regarding Congress’s stance on potential deep cuts. Despite renewed optimism following a handshake deal on the production lots 18 and 19, a finalized undefinitized contract is necessary for Lockheed to begin receiving funds, which has yet to be secured. The company has had to use its own resources to maintain production amid delays, resulting in a significant loss of potential revenue, amounting to $700 million in the last quarter alone.
Malave also pointed out that if the undefinitized contract is not finalized by the year’s end, Lockheed could face significant impacts in terms of revenue and cash flow, exceeding a billion dollars. However, he remains positive about completing this contract by the end of 2023.
The upcoming production lots of the F-35 are expected to be more costly than previous versions due to inflation and the integration of new technologies. This marks a shift from the previous trajectory of declining costs for the F-35. Additionally, Lockheed has experienced operational challenges from a year-long delivery pause caused by issues with an upgrade program, Technology Refresh-3. The company anticipates absorbing $600 million in costs this year due to reduced deliveries and the Department of Defense withholding funds until the upgrade is complete, although it expects to recover a portion of these losses in subsequent years.
