Judge finds no national security threat in Lockheed dispute with F-35 contractor
A federal judge has ruled that a subcontractor on Lockheed Martin’s F-35 program likely violated its contract by raising the price of its titanium materials, but also decided that the situation is not an immediate threat to the fighter jet program.
In a ruling issued late last week, Judge Reed O’Connor decided not to compel Pittsburgh-based Howmet Aerospace to continue supplying titanium at a lower price, as a dispute between Howmet and Lockheed winds through court. The ruling pushed back against Lockheed’s claims that the dispute is becoming a national security threat, and drew attention to other F-35 delivery delays that are unrelated to the pricing dispute with Howmet.
“Lockheed has not demonstrated an imminent threat to national security or its reputation and goodwill, particularly in light of the ongoing delays and backlogs already plaguing the F-35 program,” O’Connor wrote.
The court case has brought some dealings of the F-35 program out from behind closed doors and into the public. In a hearing held in a wood-paneled courtroom in downtown Fort Worth on the day after Christmas, Lockheed officials who normally wouldn’t speak to the media were made to answer questions about some of the program’s high-profile delays and its outlook heading into 2024.
The dispute between Lockheed and Howmet Aerospace centers around the price of the titanium materials that Howmet supplies for the F-35 program. That program, which is based in Fort Worth, is worth billions of dollars, and Howmet is one of over 1,000 subcontractors on the program.
Howmet has said raising its titanium prices was an economic necessity due to skyrocketing costs for the material. Lockheed has characterized the move as a contract breach.
After Howmet stopped supplying titanium to other F-35 subcontractors who did not agree to the price increase, Lockheed filed a lawsuit aiming to force Howmet to continue supplying the materials at the previous price. Lawyers for Lockheed said in legal filings that Howmet’s supply stoppage was a national security threat, because it would cause delays in F-35 deliveries.
Howmet’s attorneys then hit back in their own filings, saying the dispute was not about national security, but Lockheed’s profits.
Ahead of a hearing, O’Connor temporarily ordered Howmet to continue providing titanium at the previous, lower price. At the full-day hearing Dec. 26, the two sides argued over whether O’Connor should extend that order throughout the entirety of the lawsuit, compelling Howmet to continue selling its titanium at the lower price.
Lockheed attorneys asked witnesses about the role of titanium in the F-35 program, and what might happen if Howmet doesn’t continue providing the materials.
“It’s a ripple effect,” said Eli Javanmardi, Lockheed Aeronautics’ vice president of F-35 global supply chain management. “Think of it as a Lego piece. (If) you don’t have that Lego piece, it’s not available, you’re going to have a hole.”
Javanmardi said that, while there’s an inventory of about six months’ worth of titanium, a supply stoppage would eventually impact the subcontractors who use the titanium materials to make F-35 parts. Without the titanium supplied by Howmet, other subcontractors would eventually have to furlough their work forces, causing a further delay even once the titanium supply started back up.
“The impact would be significant,” Javanmardi said. “If they stopped shipping, the program would potentially cease to exist by June 2024.”
He added that Lockheed can’t quickly source titanium elsewhere, because Howmet is the only qualified supplier at this point. Qualifying a new supplier would take 18 to 24 months, he said. Javanmardi said Lockheed can’t simply agree to the increased price from Howmet, because then other subcontractors might ask for increases outside their contracts, too.
Howmet attorney Victor Hou pushed Lockheed employees to talk about other delays to F-35 delivery — notably, a software upgrade issue that has significantly delayed the delivery of planes.
Hou asked Javanmardi how much longer those delays – which are unrelated to Howmet – might continue. Javanmardi said he didn’t know. (That delay has been ongoing since July, and a Pentagon official said earlier this month that the delays have pushed the delivery schedule back to late spring or early summer 2024.)
“We’re overcoming those challenges pretty rapidly,” Javanmardi said in court.
Sam Stiller, Howmet’s commercial vice president, also testified about why Howmet began raising its titanium prices.
Russia is a major provider of titanium, Stiller said. After Russia invaded Ukraine in February 2022, many companies that buy titanium dropped their purchases from Russia and moved to other providers, such as in Japan. While Howmet never sourced titanium from Russia, the rapidly ramped-up demand for Japanese titanium pushed the Japanese sources to break their contracts with Howmet and dramatically increase their prices. Stiller said Howmet began purchasing titanium at an 84% premium.
And, because Howmet’s contract with Lockheed only builds in minor adjustments, Howmet has been taking the hit for the increased prices, Stiller said.
“The overwhelming amount of the cost absorption was falling on us,” Stiller said.
Hou, the Howmet attorney, read from one document, in which Stiller told Lockheed representatives that Howmet’s inflation losses totaled more than $20 million by mid-July.
Howmet attorneys also questioned why Lockheed filed a lawsuit before requesting a price audit from the U.S. government, which could’ve helped the two companies reach an agreement on an adjusted price. Lockheed filed an audit request with the U.S. Department of Commerce in mid-December, according to documents that Hou read in court, which was more than two weeks after the company filed a federal lawsuit against Howmet.
O’Connor issued his ruling several days after the hearing, and wrote that Lockheed had not proven that it would face “irreparable harm” if Howmet was not compelled to supply titanium at a lower price. O’Connor wrote that, because a number of other subcontractors have agreed to Howmet’s increased prices, there is no immediate danger to the supply chain or the F-35 program.
“Despite what appears to be an intentional breach of the parties’ fixed-pricing term, Howmet is nonetheless continuing with the core performance required: supplying titanium,” O’Connor wrote.
The next hearing in the case has not yet been scheduled.
