Production rate of the F-35 Lightning II Joint Strike fighter has slowed down owing to the supply chain being hit by the COVID-19 pandemic.
“Maintenance and upgrade developments will likely experience only minimal COVID-19 impacts. The disruptions introduced by this virus have caused us to reduce our 2020 sales expectation as production and supply chain activities have recently slowed in our aeronautics business area,” Marillyn Hewson, Lockheed Martin’s chief executive, told financial analysts during a conference call.
The company lowered its predicted 2020 sales from a previous $62.7-64.25 billion by $250-500 million. The upgraded estimated sales figure now stands at $62.25-$64 billion.
While the F-35A variant costs $89.2 million, the F-35B and F-35C variants come with a price tag of a little more than $100 million apiece.
Last October, LM bagged a mega deal worth $34 billion, to build 478 F-35 jets for the US and allies. The deal brought down the prices of all three variants of F-35s. The deal reduced the price of the F-35A to to less than $80 million by the third batch.
While Lockheed Martin is experiencing supply chain disruptions for several of its programs, the company’s aeronautics division and specifically its F-35 production poses the most significant concern, said Ken Possenriede, Lockheed Martin’s chief financial officer.
“Our current expectation is the next few months will be the peak of disruption, as the country and the rest of the world looks to successfully flatten the curve and move forward," Possenriede added.
Earlier this week, Ellen Lord, the Under Secretary of Defense for Acquisition and Sustainment, noted that shutting down assembly lines to allow for social distancing, coping with a smaller workforce and breaks in the supply chain as manufacturers of components struggle to keep on schedule, is disrupting production.
Through the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Pentagon is hoping to receive "billions and billions" of dollars of additional funding to help bolster national security-related supply chains.
“The Pentagon changed its progress payment rate from 80-90% of the contractor’s costs and changed some of the conditions regarding when progress payments are made,” the CFO added.
“We are now flowing this down to our supply base, starting with our small suppliers and our vulnerable suppliers,” he said. “We have a process where we work with our supply chain. They tell us who those suppliers are, we work with [US Department of the] Treasury to determine on a weekly basis the cash flow.”
Other Lockheed Martin programs, such as space and missile systems, are less vulnerable to COVID-19-related disruptions. They either have much longer production cycles that can weather a months-long disruption or involve engineering work that can be done remotely or through staggered scheduling at worksites, Possenriede said.