Italy's decision to cut future F-35 purchases is expected to have little short-term impact on the program but represents yet another blow to Lockheed Martin's hopes for boosting production to reduce costs.
The Italian government said Wednesday that it is altering its long-term plans and now expects to eventually buy about 90 aircraft, rather than the 131 planes that had long been planned. The cutback is part of efforts by Prime Minister Mario Monti to control Italy's public finances after contagion from the sovereign debt crisis drove borrowing costs to record highs.Italy's decision follows recent reports that Australia is reconsidering its planned F-35 buys and proposals by the U.S. government to reduce planned purchases dramatically over the next five years.Lockheed, in a statement, said it was too early to determine what impact reduced orders from Italy would have on the F-35 program's longer range plans. "Lockheed Martin understands the financial challenges facing defense budgets around the world and appreciates Italy's continued commitment in the program," the statement said.The Pentagon released its 2013 budget this week, confirming that it plans to reduce F-35 orders by 13 planes in 2013 and 179 over five years.How the combination of reduced U.S. and foreign orders will affect the workforce at Lockheed's Fort Worth plant, where the planes are being assembled, is also uncertain. Lockheed said this week that it was too early to assess the impact of proposed order reductions.Lockheed and the U.S. have yet to reach firm agreement on a contract for the 2011 F-35 order, but it is expected to be around 30 planes. The 2012 order will be about the same, plus two jets for Australia and two or three that Italy has already committed to order.As recently as a couple of years ago, Lockheed and Pentagon officials were planning on F-35 purchases approaching 100 planes a year by 2013.Delaying or reducing orders would slow Lockheed's ability to accelerate production and could drive up costs, which in turn makes it hard to reduce prices and spur future orders.The Pentagon's top weapons buyer told Defense News on Tuesday that the Pentagon's five-year budget plans assume some level of F-35 purchases by other nations. To the extent those purchases don't occur, it could drive up U.S. costs more, said Frank Kendall, acting undersecretary of defense for acquisition.Defense analyst Loren Thompson of the Lexington Institute said he remains convinced that the U.S. and its allies will likely end up buying most of the F-35s they originally planned to, but over many more years.The U.S. budget plan still envisions purchasing 2,443 jets over 20 years or more."I actually think in the end some countries will buy more," said Thompson, who acts as a consultant to Lockheed. "No country is going to want to buy a nonstealth airplane when they can have the F-35 with all of its technology. It's just going to take decades for that to happen."But other analysts have more sober views."Italy's decision won't have a huge impact on the program, but it's probably symptomatic of lower F-35 sales overall," said Paul Brant, a defense analyst at Collins Stewart in London. "I imagine most nations will bring down their numbers. The U.S. will probably cut the total it orders by about 500 from the original 2,400."Italy was one of the major U.S. partners on the F-35, having invested $1 billion in the development phase and spending more to prepare a final assembly plant for its planes and those of some other European buyers.This report includes material from Bloomberg News.Bob Cox, 817-390-7723Twitter: @bobcoxictHave more to add? News tip? Tell us
