Lockheed’s F-35 Mega-Deal Largely Cushioned From Budget Impasse

The Pentagon’s costliest program ever—the $398 billion F-35 Joint Strike Fighter made by Lockheed Martin Corp.—has had its share of travails: software snafus, delays, and most recently groundings. But it’s set to be largely insulated from a problem that seems poised to plague other weapons systems: the lack of a new budget for fiscal 2023.

The specter of a budget impasse is rising as the US Congress heads into rancorous midterm elections in November—and coincides with the Pentagon negotiating new contracts for hundreds more F-35 aircraft.

Spending bills for fiscal 2023 are likely to be pushed back until after the election or even into next year as lawmakers wrangle over defense and domestic spending levels. Instead, lawmakers will resort to continuing resolutions, or stopgap measures, to fund the government. Stopgap measures can be tricky for the Defense Department because it can’t start new programs, or ramp up production for existing ones such as the F-35.

Photographer: Justin Tallis/AFP via Getty Images

A Lockheed Martin F-35 fighting jet takes part in a flying display at the Farnborough Airshow in the United Kingdom in July 2022.

Despite its problems and high operational and maintenance costs, the success of the weapons program is crucial for US military services and for allies who seek to replace their older fighter aircraft with the next-generation, stealthy F-35. The US Air Force, Navy, and Marine Corps forces are all slated to fly the planes.

The Pentagon last month reached a preliminary agreement on Lockheed Martin Corp.’s next mega-contract for several hundred F-35 jets, which a defense official estimated will be worth about $30 billion. That deal covers three production lots, and a Pentagon spokeswoman said only the third lot—the government’s 17th production contract with Lockheed—could be hit by funding delays due to a continuing resolution.

“An FY’23 CR could provide constraints on the amount of FY’23 dollars the Joint Program Office receives and limit the ability to contract for new FY’23 requirements, like the option for Lot 17 aircraft,” Jessica Maxwell, a Pentagon spokeswoman, said in an e-mail to Bloomberg News.

Two previous contracts between the Pentagon and Lockheed, the 15th and 16th batches of jets, will benefit from funding already appropriated by Congress for fiscal 2021 and 2022, she said.

“The Joint Program Office also plans to exercise a contract option for Lot 17 after the FY2023 budget is finalized,” Maxwell said.

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Inflation, International Orders

Congress has made continuing resolutions routine over the last decade and the Pentagon has had to adjust its planning to avoid contract delays. But just a few years ago, it dealt with hampered production of rockets used to fight militants in Afghanistan, Iraq, and Syria, and improvements to the B-1B bomber used to deter North Korea.

Earlier: Army Munitions, Air Force Bombers Hampered by Stopgap Measure

The Pentagon last month announced that it reached a preliminary agreement with Lockheed Martin on what is now a planned 375 aircraft in total for the 15th through the 17th production contracts. The F-35 program office declined to provide an aircraft breakdown per contract.

The total number of fighters purchased has been hit by inflation and Covid-related delays. The Pentagon initially planned to purchase 485 aircraft, back in February 2019 before negotiations began, which fell to 404 jets in April 2019, according to a decision memo from former acting acquisition chief Stacy Cummings.

Lockheed Martin spokeswoman Laura Siebert said in an email that “quantities for each contract are determined by our customers to meet their mission planning needs and budget requirements.”

But the F-35 continues to see demand from abroad, with Finland, Switzerland, Germany, and Greece the latest customers. South Korea has also indicated it wants more of the jets. More than 800 F-35s have been delivered worldwide out of a potential fleet of more than 3,300 for the US and partner nations.

“The F-35 is better insulated from a CR than most programs,” said Richard Aboulafia, managing director at AeroDynamic Advisory, an aerospace and defense management consultancy. “It’s most of the way towards its production ramp goals, it enjoys a high level of program security for strategic and economic reasons, and international demand is very strong.”

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bgov.com; Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Anna Yukhananov at ayukhananov@bloombergindustry.com; Bennett Roth at broth@bgov.com