Pentagon Grants Lockheed About $1B To Stem F-35 Lot 9 Production Costs

WASHINGTON — With F-35 contract negotiations stretching on, the US Defense Department in August approved about $1 billion in additional funding to reimburse joint strike fighter manufacturer Lockheed Martin for costs incurred on the ninth batch of aircraft, sources with knowledge of the program said Thursday.

The move provides some financial relief to the company, which had been paying out of pocket for expenses associated with low-rate initial production (LRIP) lots 9 and 10. Last month, Lockheed’s chief financial officer, Bruce Tanner, said the company had spent nearly $1 billion of its own funds to compensate suppliers.

While the F-35 program executive office declined to confirm how much money had been obligated to the company, joint program office (JPO) spokesman Joe DellaVedova told Defense News that “with what we have provided, Lockheed will be able to continue the LRIP 9 production without bearing any undue burden.”

The JPO obligated the funding through an already existing undefinitized contract action (UCA) for the ninth batch of LRIP aircraft. It is now negotiating with Lockheed on a separate UCA that would provide some cash for LRIP 10 if a final contract is not agreed to by then, DellaVedova said.

“We appreciate the actions taken by the JPO to ensure delivery of F35s to our warfighter customer,” Lockheed spokesman Mark Johnson said in an email.
The Defense Department issues UCAs in cases where it needs a vendor to perform work before the final terms of a contract have been set in stone. Lockheed had already collected $625 million through the LRIP 9 UCA, announced Nov. 3. The agreement has a not-to-exceed value of $5.37 billion, meaning that the government could use it to inject even more cash at a later date.

DellaVedova declined to comment on the timing and potential value of an LRIP 10 UCA.

During a quarterly earnings call in July, Lockheed executives said the company could not sustain paying the costs of the F-35 program with its own funds. Either a final deal on LRIP 9 and 10 — which the Pentagon has said is worth approximately $14 billion for more than 140 aircraft — or a UCA would be necessary to provide relief.

“If we don't either get funding through a funding mechanism such as a UCA funding item or we definitize the contracts, we will not be able to continue and have that level of cash outflow as a corporation,” Tanner said then. “We simply don't have that capacity. The Pentagon clearly knows that situation, and I'm optimistic that we're going to get cash soon.”
DellaVedova stressed that the JPO did not obligate additional LRIP 9 funding in response to Tanner’s statements. The office started the process to increase the value of the UCA in June, he said.

“The F-35 joint program office manages the program. We know the cost. We know the technical issues with the program,” he said. “And working with industry partners, we know what it takes to deliver aircraft. So we knew that additional funds would be needed to cover the work for the LRIP 9 jets and so we took action to provide funds so there was no undue burden upon the company.”

Asked whether the UCA funding signified that LRIP 9 and 10 negotiations will continue to drag on, DellaVedova demurred.

“We want to ensure the continued production of F-35s while we continue to negotiate a fair deal,” he said.

The JPO initially predicted it would have a final contract in hand early this year.

Email: [login to see]

Twitter: @ValerieInsinna