Will Lockheed Martin's F-35 Cost America $1.1 Trillion?

Photo: U.S. Navy, via Wikimedia Commons.

It's 70% over budget, and years behind schedule, but that hasn't stopped the Pentagon from estimating that it'll spend $392 billion for 2,443 F-35s over the next few decades. Further, according to an estimate from the Cost Analysis and Program Evaluation office, or CAPE, the price to operate and maintain the F-35s for the next 55 years is $1.1 trillion -- the Pentagon's F-35 office, however, puts the cost at $857 billion. Regardless of final price, Lockheed Martin's (NYSE: LMT  ) F-35 is costing America a pretty penny. Is it worth it? 

You get more flies with honey
The F-35 is over budget and years behind schedule, but it is starting to see successes. In fact, according to Reuters, Frank Kendall, undersecretary of defense for acquisition, said about the F-35, "Program progress is sufficient for the department to budget for an increase in the production rate in fiscal year 2015." 

More importantly, Kendall said the F-35's reliability is improving, as are acquisition costs. This is especially good news for Lockheed, as well as United Technologies' (NYSE: UTX  ) subsidiary Pratt & Whitney, which makes the engine for the F-35, because Kendall said he planned to "provide strong financial incentives to LM and P&W to complete development and drive down cost in both production and sustainment."

The Inspector General has concerns
That's great news, but according to a Quality Assurance Assessment report released by the Inspector General on Sept. 30, the F-35 has a number a major issues that could "adversely affect aircraft performance, reliability, maintainability, and ultimately program cost." More pointedly, the report found 362 findings, which contained 719 issues.

Luckily, the Joint Program Office, or JPO, which overseas the F-35 program, said it's been working with Lockheed and its subcontractors, including Northrop Grumman and BAE, to "implement corrective actions," to address the IGs concerns. However, the IG report also said the JPO disagreed with some of the IGs findings, such as performing "process proofing of all critical processes," and those issues hadn't been resolved. 

What to watch
The F-35 is making progress, and there's reason for investors to be hopeful -- especially since more and more countries are interested in purchasing the F-35. However, there are also a number of issues that still need to be addressed. Will Lockheed be able to do it? Most likely. Will it end up costing the government more money? Quite possibly. Regardless, the F-35 is a lucrative contract for Lockheed -- and its subcontractors -- and at this stage of the game, it's highly unlikely the government will pull the plug. Consequently, it'll also likely prove beneficial to Lockheed's bottom line for years to come.

Aiming for dividends?
Dividend stocks, like Lockheed Martin, can make you rich. It's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (20) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 09, 2013, at 10:37 AM, Grandpastu wrote:

    Weren't we told back in the 80s that the F-22 was the most advanced fighter and could meet all future threats? I used to work for Lockheed and I remember it well. We don't need the F-35. Its contracts are only meant to satisfy the military lobbyists and the major contractors' bottom lines and CEO's bonuses.

  • Report this Comment On November 09, 2013, at 12:41 PM, fisterkev wrote:

    Consider that the 2009 stimulus worked out to around $900 billion, and that annual deficits under Obama are averaging well over $1 trillion, and $1.1 trillion over a 55 year product life span sounds like a veritable steal in order to get us a top-notch fleet of stealthy F/A aircraft.

    At least we will get some tangible, long-term benefit out of this investment.

  • Report this Comment On November 09, 2013, at 3:00 PM, chitownarkansas wrote:

    Money is probably being funneled off to support other secret projects. DARPA and or skunk works.

  • Report this Comment On November 09, 2013, at 4:02 PM, towolf2 wrote:

    But we can sell them to other countries, and make bank. No brainer! Then if they get upset with us and use them against us, at least we'll know they are a quality item:/

  • Report this Comment On November 10, 2013, at 1:24 AM, DavidHumeful wrote:

    I know of a certain party that complains about pork-barrel spending, and I think that party better look at the military real closely.

  • Report this Comment On November 10, 2013, at 7:04 AM, Fight4Justice wrote:

    Pull the plug? Are you kidding? The five major military contractors and the Dept of Defense have developed such a cozy and mutually beneficial game plan that you will be hard pressed to find the dividing line separating the two. Oh and the glue that keeps this unholy alliance together, yea money and lots of it.

  • Report this Comment On November 10, 2013, at 7:13 AM, Fight4Justice wrote:

    Lockheed bid on this project knowing full well they could not perform within specifications and costs and still they are allowed to over run 70%. What private business is given this kind of leniency? The offending party usually eats it before it becomes a publicity nightmare and the business blunder of the decade. If you can't do it, don't bid it.

  • Report this Comment On November 10, 2013, at 10:02 AM, Fight4Justice wrote:

    Some may find it strange that Boeing, who lost in the F35 bidding war to Lockheed, is not crying foul over this atrocious 70% cost overrun. OK, besides their own guilt. Well, the top 5 defense contractors and the DOD all come to an agreement on who gets what as they basically divide up the defense budget accordingly. Sure they have to make some waves to make it look good but if you think the so called bidding is competitive, think again.

  • Report this Comment On November 10, 2013, at 11:08 AM, Thatwasbullsheet wrote:

    As long as NATO is picking on small nations where air supremacy is a given, over the top expensive fighters such as the F-22 and F-35 are feasible. However, in that same token, for most of these missions an ancient A-10, or to drive the point home-(as drones have proven) even a cost of scrap F-4 could successfully fly most missions over nations like Iraq, Libya, etc., as it is the missiles/ordinance on board that do the deed.

    For some reason we cannot learn what Nazi Germany learned with the ME-262. It was a fighter jet in a world of prop planes. Yet they could not produce enough to make any difference in a war where putting up numbers of planes in the sky matters. It doesn't matter how superior a plane is (unless running away counts), and how inferior it's opponents are if it's outnumbered and fighting a swarm. Enough ants can easily kill an elephant. We have not fought this kind of war since WW2, but as we are becoming more and more imperialistic in our NWO/Agenda 21 ventures, we will be soon. In a scenario where it is the US against Russia, China etc.- maybe even Iran, this plane will be a short term success until they are destroyed. At this point they cannot be mass produced due to prohibitive costs and technical intricacies with the design, so once our planes are exhausted, we will be left with nothing to fight with.

    We have went completely away from the WW-2 ideology that the ability to mass produce items of war in that time frame such as Jeeps, Liberty ships, B-17's, Hellcats, etc is what wins wars when it comes down to a major war.

    Now the Jeep has become a Humvee has become an MRAP (which are now too heavy to be unstuck by a few troops pushing/lifting on them). If there isn't a back-up to pull them out, they have to walk away from it.

    Everyone thinks our military technology is so badazz, and it is as a demonstration of superior technology...but in a real war scenario and our fancy intricate toys- once they're gone they're gone. Then what?

  • Report this Comment On November 10, 2013, at 2:31 PM, luckyagain wrote:

    A trillion here, a trillion there. Pretty soon it adds up some real money. Do not worry, our credit card company (China) is perfectly willing to lend us more money to buy it.

  • Report this Comment On November 10, 2013, at 7:59 PM, savage393 wrote:

    The short answer to the headline is YES!!!!!!!1

    A boondoggle from the beginning. If we sell some to foreign countries, they most likely will by them at less then cost, because they wouldn't buy one at the real cost.

    The Marines want a model for close air support. How can you do close air support at Mach 2? Why have a stealth fighter to fly slow and close to the ground? You could buy 10 A-10's for the cost of one of these, and it would do a better job. For a country that always says we can't pay for this or that, we have a way of wasting money on military toys, and don't even blink.

  • Report this Comment On November 11, 2013, at 2:50 AM, popeye1250 wrote:

    Yes, scrap it!

    You can buy a bunch more F-18's for that.

    A tremendous waste of money!

    People forget, we have nuclear submarines with nuclear weapons!

  • Report this Comment On November 11, 2013, at 5:37 AM, Azbill wrote:

    I have a novel idea, when you put out a bid that is the price you pay. If it doesn't work the contractor fixes it for free, if there cost over runs the contractor eats them. That's how it works in the real world but for some when its the government contract there arealways cost over runs, the bid means nothing.

  • Report this Comment On November 11, 2013, at 9:33 AM, dw100 wrote:

    These joint programs are notorious for overruns. The branches invovled can never agree on a common set of requirements such that they provide consistent direction to the prime contractor. Of course the prime contractor has no incentive to manage the swirl. they just keep requesting more money for new scope.

    The F-35 program is trying to do too much within one program in the name of saving money (original goal - replace 3 aircraft with one style). VTOL, carrier, land versions. With the overruns , no way we save any money on opertional costs.

  • Report this Comment On November 27, 2013, at 10:12 AM, tredadda wrote:

    Amazing that the Pentagon can afford these, but have to cut tuition assistance at a moment's notice as it is "unsustainable" and "expensive".

  • Report this Comment On November 27, 2013, at 10:26 AM, Robert5109 wrote:

    This is simply stupid to even consider it. People hungry all over this country, a infrastructure at the point of collapse and a health system that is a joke. If this country would spend just half as much on education and providing for the things this country needs to remain strong and free, we would not need more and more machines of war. The F-35 is a complete waste of taxpayers money!!

  • Report this Comment On November 27, 2013, at 2:04 PM, Gaurawalla wrote:

    The major costs of the F35 have already been sunk. It is the R&D costs. Even if we don't buy another one, the money has been spent.

    The cost per plane always quoted with the amortized R&D costs bundled in. That is why each plane purchased lowers the cost of additional planes. To really understand whether it an F18 is less expensive than an F35, you really need to look at the current manufacturing costs of each. I suspect that while an F35 costs more than an F18, it is not enough to justify continuing to build the F18.

  • Report this Comment On November 27, 2013, at 2:28 PM, Mathman6577 wrote:

    I'd rather spend money on projects like this instead of (failed) programs like Obamacare which over the long run will actually cost about as much as the F-35 if the numbers in this article are accurate. [And please don't tell me about the benefits of Obamacare -- there are none.]

    When the Iranians or Chinese are causing trouble in a few years you will be glad that the government spent money on projects like this.

    Note that current generation military aircraft are becoming outdated. The F-18 is approaching 30 years old; F-22 almost as old. And note that the F-22 and F-35 do not have the same role (they perform different mission types).

  • Report this Comment On November 27, 2013, at 3:30 PM, Grandpastu wrote:

    All this money for something we don't even need. The F-22, touted as the fighter that can meet and defeat all future threats, as advertised in the 80s, can take care of business. This is all a Congressional boondoggle done under lobbyist supervision so the defense (Offense?) industries and their minions will get more obscenely rich than they already are!

  • Report this Comment On November 27, 2013, at 5:10 PM, Mathman6577 wrote:

    The F-22 is the Air Force's primary air-air fighter and most F-35 missions will be air-ground and close air support - roles that the F-16, some F/A-18's, and Harriers perform today.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2720040, ~/Articles/ArticleHandler.aspx, 10/24/2014 3:56:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement