Lockheed posts profits despite subsidizing F-35 production

Lockheed Martin’s profits flew higher in the second quarter even though the company is subsidizing production of the F-35 joint strike fighter built at its Fort Worth plant.

The Maryland-based defense giant reported $12.9 billion in sales compared with $11.6 billion a year ago. Its net earnings in the quarter were $1 billion, or $3.32 per share, contrasted with $929 million, or $2.94 per share in the second quarter of 2015.

Lockheed also generated $1.5 billion in cash from its operations in the second quarter, up from $1.3 billion during the same period last year. The company also returned $1 billion to shareholders.

Lockheed showed a profit although it had to pump nearly $1 billion into the F-35 Lightning II program to keep the Fort Worth assembly line moving as it continues to negotiate its next production contract with the Pentagon, company officials said Tuesday.

“We made a decision at the time that we were going to not allow a stop on the program and cause a disruption in the program,” said Bruce Tanner, chief financial officer and executive vice president. “So, we’ve been funding it for a while. We will not be able to sustain that.”

Lockheed Martin’s aeronautics division is working on a contract with the government to build the next 149 jets, an official at the Fort Worth plant said. The company is scheduled to deliver 53 of the F-35s this year and has built 180 since the program began.

The F-35 program, at $379 billion, is already the most expensive weapons system in Pentagon history. The program has encountered turbulence during development, and Lockheed has worked to smooth its transition into full production.

Earlier this month, Lockheed and the International Association of Machinists and Aerospace Workers District Lodge 776 approved a nearly 6-year-long contract, avoiding a possibly crippling strike.

During a conference call, CEO Marillyn Hewson praised the latest milestones met by the F-35 program. She said the program was winding down development phases while ramping up for full production. Lockheed is spending $1.2 billion on an upgrade of the Fort Worth plant. The plant is gearing up to build 17 F-35s a month by the end of the decade.

During this quarter, the F-35 surpassed 60,000 flight hours, “demonstrating the level of flight operations and maturity of the aircraft,” Hewson said. During a recent deployment at the Air Force’s Mountain Home Air Base in Idaho, the F-35 successfully cleared all 88 sorties and met all of its objectives, pushing it closer to receiving combat-ready status later this year.

Hewson also said the Defense Department has reaffirmed that it plans to buy 2,443 of the jets for the Air Force, Marines and Navy. Internationally, demand for the plane also remains strong. Lockheed rolled out its first F-35 for Israel and delivered two to the Netherlands.

At Lockheed’s Missiles and Fire Control division based in Grand Prairie, net sales increased $31 million, or 2 percent, compared with 2015.

Sales at Sikorsky, which Lockheed bought last year for about $9 billion and merged with its Missions Systems and Training division, rose 53 percent, or $1.1 billion, when compared with last year. The bump was primarily due to $1.2 billion in sales by Sikorsky.

This story was originally published July 20, 2016 at 1:45 PM with the headline "Lockheed posts profits despite subsidizing F-35 production."