Lockheed Martin's shares dropped sharply Dec. 12 after Donald Trump slammed the company's F-35 Joint Strike Fighter (JSF) for "out of control" costs on Twitter.
"The F-35 program and cost is out of control," Trump tweeted early Dec. 12, just days after threatening to cancel Boeing's new Air Force One for excessive cost. "Billions of dollars can be saved on military (and other) purchases after Jan. 20."
Just before delivering Israel’s first two F-35s at Nevatim air base, Jeff Babione, executive vice president of Lockheed Martin’s F-35 program, used the president-elect’s statement to stress the program’s relative value.
Lockheed has invested hundreds of millions of dollars to reduce the per-unit cost of the airplane more than 60%, he said. The company projects the price tag will be $85 million in the 2019 -2020 timeframe. At that that price, the F-35 will be less expensive than any fourth-generation fighter in the world, Babione said. “And it will be the premiere fifth-generation fighter. That’s an incredible value for anyone operating the airplane.”
Before regular trading on Wall Street opened Dec. 12, Lockheed’s stock had dipped almost 3%. As I wrote late Dec. 11, the JSF is the second big-ticket defense item Trump has slammed in the last week in an apparent campaign to rein in contractors and costly military programs.
If Boeing’s stock is any guide, Lockheed’s shares likely will recover all or most of the lost price as traders calm down about how quickly or effectively Trump can cut into major defense acquisition program profits.
The week before, prime contractors already were seeing their stock prices give up some of the gains they received after Trump’s surprise election win. A tweeting pattern now has been established, and analysts are tuned in.
“Even if Trump only launches a bombastic Twitter shoutout, this more aggressive approach to contractor relations could impact the stocks,” Cowen and Co. analysts said Dec. 7, “particularly the platform-producing primes, e.g. Lockheed Martin and Northrop Grumman, which are selling for record [multiples of] 15x.”
But Byron Callan of Capital Alpha Partners sought to reassure investors after the Dec. 12 tweet.
"Until the costs and risks of conceivable alternatives are known, compared to current F-35 plans, we don’t believe investors should panic over the program’s prospects based on a single Trump tweet," Callan wrote in an email.
Callan also noted that Trump's statement that F-35 costs are "out of control" is wrong, pointing out that unit prices have been declining and the program has stabilized in recent years.
"We strongly doubt that Trump has been fully informed of the F-35 program or alternatives to modernize U.S. tactical aircraft inventories. As well, we strongly doubt that he has been informed of the unique international nature of the program," Callan wrote.
With additional reporting by Michael Bruno
Editor's note: This story was updated to add comment from Lockheed Martin.