Lockheed Martin (LMT, Financial) recently received an order for four F-35 Joint Striker Fighter Jets from Great Britain. The F-35B aircraft will be used by the Royal Navy and Royal Air Force. This comes after Britain’s Ministry of Defense signed an agreement with Lockheed Martin last month, whereby the company would develop and deliver 14 F-35B aircraft for Britain, the orders for which would be placed over the next five years. The order announced today marks the second order from that agreement.
This deal is a part of the $4.7 billion contract that Pentagon signed with Lockheed Martin. The deal has been named the Low Rate Initial Production Lot (LRIP).Ă‚ Under the terms of this deal, the company would manufacture the eighth batch of F-35 aircraft to the Pentagon and four F-35B aircraft to be delivered to Britain. Apart from Britain, the aircraft manufactured as a part of the LRIP8 will be delivered to Israel, Japan, Norway and Italy.
Comments and statements
England’s Minister of Defense Equipment Support and Technology said, “The investment we are making in the F-35 aircraft will ensure we are securing the skies for decades to come, providing the UK with the latest stealth technology and multi-role aircraft capability.”
Deliveries for the order placed today are expected to begin mid-2016, with the jets being fully operational by 2018.
Moreover, it was also reported that the company’s UK division had opened a simulation facility for training pilots and engineers. Lockheed Martin UK said, "By simulating battle scenarios, users are able to get a realistic understanding of how the F-35B will operate.”
Terms of the contract
Per the agreement, the company will develop the eighth batch comprising 43 units of F-35 fighter jets for the U.S. military and its allies, including Britain. This comprises 29 jets for the U.S. and 14 for five other countries: Israel, Japan, Norway, Britain and Italy.
Although the F-35 has been regarded as the most expensive weapons program of the U.S. Department of Defense (DoD) – carrying a potential price tag of $400 billion to $1 trillion – Lockheed Martin aims to reduce the cost per plane in the eighth batch by 3.5% from the seventh and 57% from the first contract.
In the face of fierce criticism against the F-35 fighter jet on grounds of both price and performance, Lockheed Martin and its two main partners, Northrop Grumman Corporation and BAE Systems plc, inked an agreement, The Blueprint for Affordability, with the DoD in Jul 2014.
Per the contract, LMT, Northrop Grumman and BAE Systems will collectively invest $170 million in the coming three years to the reduce the cost of the F-35 program. Currently, the cost of an F-35 jet stands at more than $100 million. The aim of this agreement is to reduce the average production cost of an F-35 jet to around $80 million.The Department of Defense also xpected to invest $300 million in initiatives to reduce the costs over the next three years. The program is likely to bring the cost of the F-35 down to $80-85 million, according to the F-35 joint program executive officer of the U.S. Air Force Lt. Gen. Christopher Bogdan.
To conclude
Lockheed Martin ran up against few F-35 glitches earlier this yera as the Air Force, Navy and Marine Corps grounded all F-35 flights on July 3. The order was issued following emergency at Eglin Air Force Base in Florida on June 23, when a fire in the rear of one plane compelled te pilot to terminate a take-off. LMT subsequently resumed F-35 flights after fixing its engine problems. The company has done decently well for the past three quarters. The P/E ratio and the debt-equity equivalence also seem pretty decent and for a good return on investment I'd suggest LMT.
