is looking to new government interest in follow-on modernization (FOM) upgrades of the
Joint Strike Fighter to drive future business returns on top of what could be ballooning sustainment revenue, according to the company’s chief financial officer (CFO).
CFO Ken Possenriede told a Credit Suisse investor conference this month that FOM and sustainment will drive business growth out of the F-35 for Lockheed and its shareholders as production returns shrink with unit price reductions and maturing production.
“We ended the SDD [system design and development] program, but the customer still is looking at capability that they want,” he told financial analysts and investors. “So you’ll see growth there and in sustainment.”
Lockheed Martin expects to deliver 131 F-35 Joint Strike Fighters this year, compared with 91 in 2018, and should deliver 140 in 2020. Over the next few years, Lockheed expects total international demand for the F-35 to drive production to about 175 a year, most of which will be built in Fort Worth, but with some finished in Japan or Italy.
But because the price per aircraft has been reduced 13% over low-rate production lots 11-14, to below $80 million per jet for the A variant, that part of the program–“the lion’s share” now–is increasingly becoming minimized as a moneymaker.
“The reduction in price has been faster than the ramp-up in quantity,” Possenriede said. “So it’s going to be, at least in the short term, [that] you’ll probably see modest growth in production revenue.”
Lockheed won the original $19 billion SDD contract in 2001, but spending on the FOM, also called Block 4 improvements, could reach an additional $16 billion under Pentagon plans discussed last year.
At the same time, the F-35 fleet is expected to more than double from about 400 aircraft to 1,000 in the next couple of years.
“You’ll have more sparing, some more repairing,” he said. “But then you’ll see a larger influx of the modification work that will get done, and you’ll see sustainment over the next couple of years double. So that will be a faster piece of the revenue.”
The company is about one-third complete in standing up repair base facilities now.
Lockheed also continues to promote a performance-based logistics contract for the F-35, the CFO noted.
“We provided a white paper, call it an unsolicited proposal, that basically commits to the 80% availability and it commits to the $25,000 per flight hour, which we think is the right number to get to,” he said Dec. 5.
The F-35 currently costs $35,000 a flight hour.
