As officials try to gauge the potential effects of sequestration on its vaunted Joint Strike Fighter, the contractor is looking toward international sales to keep the program steadily aloft.
“In terms of any impact that we might see on F-35,” says Marillyn Hewson, Lockheed President and CEO, the company will “backfill probably by international opportunities because that’s where we’re going to ramp up. In fact, we look over the next five years close to 50% of our orders will come from international customers. So we’ve got to just wait until they come forward with or wait until thecomes forward with what their plans are and then we’ll adjust accordingly.”
In the pre-sequestration fiscal 2014 budget, the Pentagon plans to order just more than 300 F-35s in all three variants in the next five years (2014 through 2018). International customers are expected to place multiyear orders for most or all of their planned fleets, so Hewson’s prediction is likely to be accurate if Australia, Britain, Japan and other customers maintain their current plans and the campaign to sell the F-35 to South Korea is successful.
The Pentagon “has not come out with a definitive position on how they’re going to take into account sequestration,” Hewson said July 23 during a quarterly earnings call with Wall Street investment analysts. “I know there has been lot of speculation. I’m not going to speculate on what they’ll come out with.”
She says, “We’re working closely with them. They’re looking at different scenarios of how they are, if they’ll address it. One thing I will say is that they’re very supportive of the F-35 and we’ll just have to see how it comes out.”
The conclusion of negotiations on the sixth and seventh F-35 low-rate initial production (LRIP) lots is expected before the end of the summer. Those lots will include foreign orders.
Bruce Tanner, company executive vice president and CFO, says, “Think of the [F-35] negotiations that we hope to close fairly quickly here as being the same quantities we have embedded within the fiscal year themselves, not adjusted for sequestration. [Defense Undersecretary Frank] Kendall has been pretty vocal about trying to keep quantities and trying to prevent sort of the reopening of contracts.”
Robert Spingarn, of Credit Suisse, asked, “So, Bruce, if I want to understand what you both just said, it’s not so much about quantities, it’s more about total dollars and these dollars don’t necessarily come off of unit price but from other areas of the program?”
Tanner answered, “I think you said it just right, Rob.”