Lockheed stock falls after Trump tweet about F-35 program

President-elect Donald Trump called the F-35 program and its costs “out of control” in a tweet Monday.
President-elect Donald Trump called the F-35 program and its costs “out of control” in a tweet Monday. kbouaphanh@star-telegram.com

The F-35 came under attack from President-elect Donald Trump on Monday, who took to Twitter to declare that the fighter jet program is “out of control” and pledged to trim billions of dollars on military contracts after he is inaugurated.

The tweet, posted before the stock market opened, sent shares of Lockheed Martin and other defense companies spiraling downward. By the end of trading, shares of Lockheed (ticker: LMT) fell $6.42, or 2.5 percent, to $253.11, after falling as much as 5 percent earlier. The F-35 program accounted for about 20 percent of Lockheed’s total revenue last year.

The criticism was Trump’s second broadside at a big government contractor this month. Last week, he called out Boeing Co. on the projected costs for developing a new version of Air Force One, and ended the tweet with “Cancel order!”

Any cutbacks in the F-35 program would have a big impact in Fort Worth, where Lockheed Martin builds the stealth fighter. Lockheed’s west Fort Worth complex has been undergoing a $1.2 billion upgrade to prepare for increased production of the fighter jet, being built for the U.S. military and several foreign nations.

Lockheed officials responded to Trump’s comments by saying that it has invested heavily in reducing the cost of the F-35.

“We understand the importance of affordability, and that’s what the F-35 has been about. But more importantly, it’s the amazing technology,” said Jeff Babione, executive vice president and general manager of the F-35 program, who was in Israel for the arrival of that nation’s first two F-35 fighters.

Babione said that as production ramps up, the price of an individual F-35 will fall to $85 million “in the 2019 or the 2020 timeframe.”

“When we get to $85 million, the F-35 will be less expensive than any fourth-generation fighter in the world, and you’ll have the premier fifth-generation fighter, so that’s an incredible value for anyone operating the airplane,” he told reporters at Nevatim Air Force Base in southern Israel.

Trump first shared his misgivings about the F-35 program during the campaign, when he told a conservative radio talk show that he had doubts about the aircraft’s performance and cost. He was reacting to a blog report that has since been discredited in which a test pilot found that the “pricey new stealth jet can’t turn or climb fast enough to hit an enemy plane during a dogfight.”

“I do hear that it’s not very good,” Trump said at the time. “I’m hearing that our existing planes are better. And one of the pilots came out of the plane, one of the test pilots, and said this isn’t as good as what we already have.”

Following the election last month, Orlando Carvalho, Lockheed’s executive vice president for aeronautics, told the Star-Telegram that the company was already reaching out to President-elect Trump’s transition team to discuss the program.

“We believe that in working with his transition team, all the right information will get communicated and they’ll make the right decisions,” Carvalho said.

Lockheed Martin employs 14,000 workers at its aeronautics complex in Fort Worth, with about 8,800 working on the F-35 program. Officials have said 1,000 additional workers may be needed as production ramps up.

Lockheed officials said it had already built 184 combat-capable jets and planned to deliver about 50 this year. Current plans call for production to increase to about 160 a year by 2019.

Responding to Trump’s comments on Monday, U.S. Rep. Marc Veasey, D-Fort Worth, who sits on the House Armed Services Committee, said the F-35 is needed to keep the U.S. competitive and safe.

“As Russia and China advance their stealth aircraft, we must ensure we can defend and protect our homeland,” he said in a statement. “I am open to the discussion of cost-saving proposals to the program if it does not compromise capabilities, the safety of our service members, or jobs in North Texas.”

The F-35 has had a prolonged development history marked by cost overruns and technical problems. In recent years, the nearly $400 billion program has shown improvement in cost and performance. The cost of the jet fighter also has fallen to $108 million a copy, and Lockheed hopes to get it down to $80 million to $85 million.

But there are still unresolved issues. Just recently, the Defense Department’s chief weapons tester recently questioned a Pentagon memo to the U.S. Senate in response to questions about the jet’s performance. His critiques disagreed with the way the Pentagon described how the program is on course.

Lockheed Martin recently received a $1.3 billion Pentagon down payment to continue production of the fighter jet while negotiations continue on a contract worth as much as $7.19 billion for 90 aircraft, the biggest order so far. The jets would be delivered in 2018.

While Lockheed Martin’s shares took a hit Monday, Jim Corridore of CFRA Research still believes the company’s stock is a “strong buy.”

“While it’s clear that there are opportunities for cost savings in military procurement, we see the F-35 program, on the cusp of full production, is likely to continue to be funded,” Corridore said in a research note. “We reiterate our stance that military spending is likely to rise given Mr. Trump’s stated priorities, and we see significant operating leverage on incremental revenues for LMT.”

Staff writer Judy Wiley contributed to this report, which includes material from Bloomberg News and Star-Telegram archives.

Max B. Baker: 817-390-7714, @MaxbakerBB

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