Lockheed's F-35 program wins new contracts

Orders from the US and Norway should benefit the company's aeronautics division.

By Trefis Jun 21, 2012 9:10AM
TrefisLockheed Martin (LMT) last week received a $490 million contract from the U.S. Department of Defense to start buying materials and components for the seventh batch of 35 F-35 Joint Strike Fighter (JSF) planes.

The seventh batch will deliver 19 conventional take-off and landing or F-35 "A" models to the U.S. Air Force, six short take-off and vertical landing or F-35 "B" models to the U.S. Marine Corps, four carrier variants of F-35 to the U.S. Navy. The remaining six F-35 fighter planes will be delivered to some of the international partners of the F-35 JSF program, including three F-35 "A" models to Italy, two F-35 "A" models to Turkey and one F-35 "B" model to Britain.

The company also received an order for two F-35s from Norway last week. Norway plans to order 50 more F-35s for an estimated cost of $10 billion and will receive its first four F-35s by 2016 and the rest post 2017.

We currently have a Trefis price estimate of $86 for Lockheed Martin, 3% above its current stock market price.

The F-35 JSF program

The F-35 is a multi-role combat aircraft, which is part of the Joint Strike Fighter program intended to replace a wide range of existing combat aircraft in the U.S. and eight international partners: Britain, Canada, Australia, Italy, Turkey, Denmark, Norway and the Netherlands. The program aims to deliver approximately 2,400 F-35s to the U.S. and nearly 700 to its international partners.

The program has, however, suffered from production delays leading to cost overruns and a three-time restructuring. As a result, the U.S. and Australia have delayed orders, while Italy and Netherlands have indicated cuts in their order sizes. Concerns have also mounted because expected budget cuts in the U.S. and Europe are likely to weigh on Lockheed's orders.

Importance of the program to Lockheed Martin

This does not bode well for Lockheed Martin, as the F-35 JSF program is a crucial one for the company. The program constituted nearly 12% of the company's revenue in 2010. And with the end of production for the F-22 Raptor aircraft, we anticipate the F-35 program to assume a greater proportion of Lockheed's revenue.

The F-35 is part of the aeronautics division, which constitutes approximately 26% of Lockheed Martin's stock value, by our analysis.

Lockheed US Aeronautics Share of Total DoD NASA and HS Contracts

In light of the production delays and order cuts in the F-35 program, the contract award of $490 million for the seventh batch of F-35s will help the company achieve its production schedules, and the Norwegian order will lend confidence to shareholders.

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Tags: LMT


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