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Janes Defence

April 24, 2016

F-35 production “a little lighter” than expected
Defence contractor hopes to make up lost ground later in the year

Production of Lockheed Martin’s flagship F-35 fighter jets came in below expectations during the first quarter. According to Bruce Tanner, the company’s chief financial officer, only six units were produced between January and March, a result he described as “a little lighter,” than expected.

The sluggish output was due to several “administrative” factors, Tanner told analysts during a conference following today’s earnings release. These included the process of transitioning between production lots, and of getting acceptance of certain software. Lockheed’s operational performance also suffered. Although sales were up, earnings fell sharply, to $794 million compared to $878 million during the same quarter last year.

Order backlogs also fell, and the company announced staff cuts in its aerospace and other divisions. Lockheed Martin took a $99 million charge during the quarter to account for “voluntary and non-voluntary” workforce reductions.

That said, according to Marillyn Hewson, Lockheed’s CEO, the company hopes to make up for lost ground later in the year, and continues to expect to reach its 53-unit F-35 production target for 2016. She also highlighted several milestones in the program, including the first F-35 trans-Atlantic flight from the Italian final assembly and test facility, and achievement of 50,000 hours of flight time, for the global fleet. The company also continues to follow potential F-35 procurement developments in promising foreign markets, notably Denmark.

Canadian general tells government to take new look at JSF
Lockheed-Martin’s weak earnings numbers were compensated somewhat by good news from Canada, where Lieutenant-General Michael Hood, Chief of the Air Force Staff and head of the Royal Canadian Air Force, yesterday called on the new Liberal Government to take another look at Lockheed-Martin’s F-35 Lightning II aircraft.

During the election campaign, then-candidate (and now Prime Minister) Justin Trudeau, had promised to scrap the country’s plans to buy the Joint Strike Fighters and to divert the savings to Canada’s Navy. Once he took office Trudeau sent a mandate letter to the defence department asking for an open and fair competition for a next generation fighter. Whether Lockheed-Martin would be included in that competition, has not been fully addressed.

However in a work session on Monday at Aero Montreal’s Aerospace Innovation Forum, Hood made clear his thoughts on the matter. “I keep the advice I give to the government private. My job is to follow orders,” said Hood. “But let me say this: you can’t have an open and fair competition if someone gets left out.” Canada’s Department of National Defence and the Prime Minister’s Office did not immediately reply to queries about whether Hood’s comments signaled a position change.

Sikorsky integration going well. But personnel moves pending.
Integration of Lockheed Martin’s newly acquired Sikorsky helicopter unit is also going well. The combined businesses continue to see cost reduction opportunities and the potential to develop new synergies, a process that will continue during the coming quarter said Hewson.

That’s particularly true in their respective supply chains, where several business areas procure similar materials, a process that will be rationalized into a single operation, in order to improve buying power. Hewson did not clarify whether redundant personnel would be laid off or transferred to other functions (A Lockheed spokesperson would not comment regarding staff cut totals).

However Hewson did note that Lockheed and Sikorsky would continue to work together to try identify best practices, processes and tools in the two businesses.

Hewson also claimed that significant progress had been achieved on the CH-53K helicopter program. The first flight of the second prototype test helicopter in the category, which took place in February, has set the pace for further future progress said Lockheed’s CEO. She also confirmed the Marine Corp’s plans to buy 200 CH-53Ks, and that Lockheed had recently received an order for long lead items for the first two units, as part of a low-rate initial production “lot one.”

Peter (at) peterdiekmeyer (dot) com

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peter@peterdiekmeyer.com

Peter Diekmeyer Communications Inc.