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Lockheed's F-35 deal ratchets up pressure to slash production costs

Lockheed maintained that “the agreement was reached in a matter of weeks and represents significant savings over previous contracts.”

Most of the planes being ordered by the Pentagon are for the F-35A, a conventional takeoff and landing variant for the U.S. Air Force. There’s also the F-35B variant for the Marines Corps capable of short takeoffs and vertical landings, while the F-35C for the Navy is a carrier variant.

Lockheed’s agreement announced Friday involves a contract for the tenth batch of F-35 aircraft and a total of 90 jets — a more than 40 percent increase from the previous lot. That includes 55 jets for the U.S. armed services and 35 jets for international partners and foreign military sales customers, Lockheed said.

The lot 10 deal cut the per-plane price on the F-35A to $94.6 million, or a 7.3 percent price reduction from the previous lot 9 terms. That marks the first time the F-35A variant has been below $100 million and also represents a more than 60 percent price drop on the plane since the first production lot.

Meantime, the lot 10 terms have the F-35B variant’s per-plane price at $122.8 million, down 6.7 percent from the lot 9 terms. And the F-35C variant’s per-plane price is $121.8 million, or 7.9 percent below the lot 9 price.

Higgins said that the price reductions on lot 10 were “on the high end of what they were talking about. They were talking about 6 to 7 percent price reductions compared with lot 9 and you’re looking at the price reductions above 7 percent (on the F-35A and F-35C).”

Lockheed has been bringing down the recurring costs on the aircraft, he said, and the F-35 program still is profitable for the company and likely will remain so. Still, the analyst expects there’s a question about whether the defense contractor will be able to expand margins as quickly on the F-35.

“They were expecting margin expansion on it,” said Higgins. “This could potentially put that in jeopardy.”

source : CNBC

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