Lockheed Martin (NYSE:LMT) still has significant work to do on its F-35 fighter, according to the Pentagon office responsible for testing and evaluating weapons systems.

An annual report from the Department of Defense operational testing unit delivered to Pentagon leaders and lawmakers found that efforts to improve the reliability of the F-35 are "stagnant," according to Bloomberg. The F-35, the most expensive weapons platform in history, has had rocky moments during its more than 16-year development phase, but Lockheed has said the worst of the issues are now behind it.

An F-35 flying above the clouds.

Image source: Lockheed Martin.

The Pentagon report does not paint a rosy picture. The jet's availability for missions when needed stands at about 50%, according to the report, "a condition that has existed with no significant improvement since October 2014" even as the number of aircraft has increased.

Lockheed countered that newer jets have better availability scores, noting that some operational squadrons are consistently at or above 70% availability. A company spokeswoman told Bloomberg, "We are confident in the F-35's transformational capability that continues to be demonstrated through the steady progress in development, production and sustainment operations."

A long list of issues

The report mentions lingering issues with the plane's software code and about 1,000 unresolved deficiencies with the aircraft. Among the issues, aerial refueling would be restricted on certain models of the plane, the software will not allow for the full range of combat capabilities the F-35 was designed for, and the pilot's helmet display has flaws in the way it shows flight and targeting data.

The report also said there are issues procuring replacement parts for some of the 265 jets already delivered due to issues in the planes' diagnostic systems that sometimes report failures that have not actually occurred.

Robert Behler, the Pentagon's director of operational test and evaluation, according to Defense News, has concluded that the initial operational test and evaluation process, which needs to be completed before full-rate production starts, will not be able to begin until late 2018.

It's never easy on the bleeding edge

Most of the issues the F-35 has had can be attributed to how ambitious the plans for the plane have been. The F-35 has been billed as the last manned fighter jet, and Lockheed has experienced significant trial and error while trying to future-proof the plane with bleeding edge technologies and manufacturing processes. Development of the plane began in the early 1990s, and by 2014 the F-35 was under fire for being an estimated seven years behind schedule and $163 billion over budget.

Many people, especially critics, have argued that due to the level of investment and the high cost of starting over, the F-35 is effectively too big to fail. And Lockheed, to its credit, has made strides in developing the plane and bringing down the unit price. The company broke the $100 million-per-unit barrier in 2016 and future airframes will sell for as little as $80 million, a price competitive against older, less advanced fighter planes marketed by rivals including Boeing.

Don't panic

It's impossible to overstate the importance of the F-35 to Lockheed Martin. The jet already accounts for more than one-quarter of the company's revenue, and is expected to generate more than $1 trillion in sales and long-term support for the company and its subcontractors through the end of the century. Lockheed has taken steps to diversify its business, like buying Sikorsky helicopter from United Technologies for $9 billion in 2015, but even before full production, Lockheed admitted last year that delays to the F-35 could cause quarterly results that fell short of expectations

That said, the Pentagon is nowhere near considering dumping the F-35, and both the government and Lockheed Martin have every reason to work together to get all the remaining issues worked out. It's a safe bet that Lockheed still has a long-term winner in the F-35. Just understand that patience is required.

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