Is It Time to Kill Lockheed Martin's $398.6 Billion F-35 Program?

An F-35B Lightning II aircraft lands aboard the amphibious assault ship USS Wasp (LHD 1) during the second at-sea F-35 developmental test event. Source: U.S. Navy courtesy of Lockheed Martin by Andy Wolfe.

Thanks to an engine fire, Lockheed Martin's (NYSE: LMT  ) F-35 has been grounded. Further, thanks to this grounding, the F-35 won't fly at Britain's Royal International Air Tattoo, or RIAT, and could miss the Farnborough International Airshow, which starts on July 14.

Moreover, this latest development is just part of a series of problems plaguing the F-35, which now has a revised price of $398.6 billion just for accusation and development. Accordingly, this leads to the question: Is it time to kill the F-35?

Sky-high costs and massive problems
The F-35 is no stranger to problems. In addition to its recent engine fire, the F-35 is billions over budget, almost a decade behind schedule, and plagued by technical flaws. Plus, critics like Sen. John McCain are quick to point out that while the F-35 is supposed to reach initial operating capability in 2016, it will only do so by using a less lethal version of the software. 

F-35 Lightning II. Photo credit: Lockheed Martin via Northrop Grumman.

Furthermore, both Boeing (NYSE: BA  ) and USAF Col. Michael W. Pietrucha have questioned the F-35's ability to survive evolving threats, and this isn't the first time the F-35's been grounded due to engine problems. In early 2013, the F-35 was grounded due to a crack in the plane's engine -- and that's not the only issue.  

Chronic engine problems
Unfortunately, the F-35's recent engine fire isn't the first glitch to face United Technologies' (NYSE: UTX  ) Pratt & Whitney made F135 engine. In fact, according to defense-aerospace.com, some of the F135's engine problems include: burning hotter than desired, repeated problems with the turbine blades, problems with the redesigned engine including failure to meet specifications, significant test failures, and a major oil leak -- which happened on June 13, just 10 days before the June 23 engine fire. 

More importantly, as defense-aerospace.com points out, these complications -- many of them recurring -- could indicate that the F135 engine has serious design and structural faults. 

No "kill" order, yet...
So far the good news for Lockheed is that despite all of its problems, U.S. lawmakers still seem committed to supporting the F-35. Florida Sen. Bill Nelson described the recent engine fire as a "hiccup," and even longtime F-35 critic Sen. McCain said, "In some ways [the F-35's] too big to fail, but it's a debacle. We've been fighting this battle of cost overruns and glitches for a number of years," reports The Hill

F-35. Photo credit: Lockheed Martin via Northrop Grumman.

Plus Frank Kendall, Under Secretary of Defense for Acquisition, recently told the House Armed Services Committee that, "There's a growing body of evidence that this may have been an individual situation, not a systemic one. But we don't know that for certain at this point in time."  

The bad news is that the problems facing the F-35 continue to crop up, and one has to wonder how long the Pentagon will continue to support this program. Further, as Reuter's reports, a failure to appear at both the RIAT and Farnborough could cost Lockheed F-35 sales, as several countries are "weighing orders" for the F-35 and a grounding isn't exactly the best sales pitch.

What to watch
When it comes to Lockheed's bottom line, arguably no program is as important as the F-35. In 2013, the F-35 made up 16% of Lockheed's total consolidated net sales, and when Lockheed reported its first-quarter results for 2014, it said, "Aeronautics' net sales for the first quarter of 2014 increased $200 million, or 6 percent, compared to the same period in 2013. The increase was primarily attributable to higher net sales of about $190 million for F-35 production contracts due to increased volume."  

As such, anything that negatively, or positively, impacts the F-35 program is something to watch. Hopefully, whatever caused the latest engine problem will be an "easy" fix, and Lockheed's F-35 will return to the skies. However, the recurring engine problems could be cause for investor concern -- no matter how advanced it is, a warplane isn't much good without a working engine. Consequently, this is something investors should continue to closely monitor.

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  • Report this Comment On July 12, 2014, at 11:28 AM, ilsm50 wrote:

    Yes, the US Army just killed its Future Combat System. The A-12 was killed. The F-117 stealthy fighter has already been retired.

    While B-2 stopped at 21 after it proved a failure like F-35.

    It is lot of pork to abandon, but pork don't win wars.

  • Report this Comment On July 12, 2014, at 11:51 AM, Tiger69 wrote:

    "...As several countries are 'weighing orders' for the F-35...."

    So, we are continuing this overpriced, military piece of crap so we can sell it to other countries? This is national defense? I just fell down the rabbit hole.

    This is nothing more than a bunch ego-driven military brass padding their retirement exits with military industrial consulting jobs while the contractors get rich on the rest of us. Meanwhile, the world becomes a more heavily armed and unstable place. No wonder people like the Amish politely decline membership in this paranoid, every-man-for-himself world. Thankfully, I don't have kids.

  • Report this Comment On July 12, 2014, at 1:01 PM, kermode73 wrote:

    People just don't get it. The F-35 is the latest in technology. It's revolutionary. It is all new. There WILL be teething problems and growing pains. And they will all be corrected.

    You just cannot have the latest and best technology and expect it to be perfect. For comparison just look at Boeing's 787, the latest technology in commercial aviation, which after all the major growing pains, is now showing incredible benefits to the airlines using it.

    As for F-35 total cost, take all the costs, including development and logistics, of the F-16, F-15, F-18, AV-8, A-10 and all their variants and put them all in the same timeframe as the F-35. Then take into account the additional capabilities of the F-35. Only then can there be a better cost comparison of the F-35.

  • Report this Comment On July 12, 2014, at 8:58 PM, ilsm50 wrote:

    @kermode73,

    F-35 don't hunt.

    Total ownership cost of the F-35 will be $1500B, cutting corners in maintenace and training. Cancel it now and $1400B gets better uses.

    F-35 is not the latest in technology, stealth is 1970's and is defeated. The avionics are pretty standard. It carries 16000 pounds of fuel! Overweight dog!

    B787 is a bad comparision since it does things other airliers cannot. F-35 is not competitive with many Russian designs.

  • Report this Comment On July 12, 2014, at 11:51 PM, kermode73 wrote:

    @itsm50

    As I said, put it in numbers. All you present is vaporware. If the F-35 is that bad, then what is/are the alternatives, and at what cost? Including starting a new program, keeping current ones, etc... I have NEVER seen a true cost comparison of F-35 versus all those it replaces. You need to consider that we are standardizing production, maintenance, training, spares, etc... - all the support and operational logistics.

    The F-35 may be 70's tech as you say, yet it is 5th generation fighter. Who else has a functional 5th generation fighter? (USA, F-22)

    Personally, I would like to see the 6th generation fighter with sub-orbital or full orbital capabilities.

  • Report this Comment On July 13, 2014, at 3:30 AM, Babylon wrote:

    @kermode73, you do know that those of us on this board are not the same as the demented fools at the shareholders meeting.

    Combat proven (F-117) means so much more when the bullet hits the shattering bone, er ah, graphite.

    I'd buy a few F-35B's to replace AV8 but that's about it. The rest is a snow job on the tax payers.

    Let NATO buy the A's and C's, let'em go as with the F-20's. That's what they're really worth.

  • Report this Comment On July 13, 2014, at 3:39 AM, Babylon wrote:

    Tiger69, "This is nothing more than a bunch ego-driven military brass padding their retirement exits with military industrial consulting jobs while the contractors get rich on the rest of us."

    Take it from someone on the inside, you're 110% correct. Obama's going to have to push that button and McCain is the only program detractor that could urge him to do that.

    Can you image Stevens making nearly $40 million/ year get the board of directors to give him a 15% salary increase! There is no frenzy like the frenzy of greed.

  • Report this Comment On July 13, 2014, at 7:22 AM, ilsm50 wrote:

    @kenmode73,

    F-35 should still be 7 development aeroplanes flying out of Pax River. Nothing from F-35 tests which are late and mostly negative justifies any more airplanes.

    The alternatives to F-35 are: A-10, F-16, F15, F/A-18E all but the A-10 are still in production.

    That the F-35 don't work is proven.

    You fall for the logic that the snake oil salesmen from Lockheed and the pentagon use.

    You don't need to prove the F-35 failed to kill it or profgress to more skin in the game, you have to prove it works to go on.

    @Tiger69: Cheney as SecDef killed A-10, sadly Hagel and Kendall are pork masters. I was on the "inside" as well.

    The pentagon spending nearly $3T in systems as badly managed as F-35.

    It is all pork.

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