Over the next few years at least, Lockheed Martin [LMT] continues to expect to increase sales on its F-35 fighter program through growing production, development and sustainment activities, Lockheed Martin’s outgoing chief executive said on Wednesday.
Production on the F-35 is set to ramp up to 170 aircraft in 2022, but new international orders could take that to over 180 fighters beyond that, Marillyn Hewson said during a discussion hosted by Bernstein aerospace and defense analyst Douglas Harned.
“We have the capacity to built over 180 aircraft a year,” Hewson said. “We may have a little bit of additional tooling that we’d have to buy but we could get up to 180 a year. She added that “we know there’s still a lot of demand out there.”
The U.S. Air Force, Navy and Marine Corps are all buying variants of the F-35 and the company currently has a dozen international customers.
Harned noted that the F-35 has been a “huge growth” program for Lockheed Martin but is heading toward a period of steady state production and plans to reduce the sustainment costs for its customers.
“How should we think about F-35 growth from here?” he asked, and then asked if it would flatten or continue growing in the next few years.
At some point the annual production rate will peak but Hewson expects to eventually surpass the current program of record of 3,300 aircraft. So far, more than 520 aircraft have been delivered, she said.
The delivery target in 2020 for the F-35 is 141 aircraft but impacts on Lockheed Martin’s suppliers stemming from the ongoing COVID-19 pandemic will reduce production by between 18 and 24 aircraft this year, the company said last week. The production lull will only be temporary and the company expects to return to normal this fall.
Lockheed Martin in April reduced its sales guidance for 2020 by close to $375 million to account for the expected delivery delays.
In 2019, the F-35 accounted for 27 percent of Lockheed Martin’s sales of $59.8 billion.
There is also growth ahead in sustainment activities for the aircraft, Hewson said, highlighting that only about 50 percent of the bases the aircraft will operate from worldwide have been stood up. Over the past few years, F-35 sustainment work has been growing in the high single-digits and at “some point” is expected to reach double-digit growth rates, she said.
Sustainment work includes spares, retrofits with new upgrades, and preventive maintenance, Hewson said. In the next five years more than 1,000 aircraft will have been delivered.
“So, when you think about that, we’re going to continue to see continued growth on sustainment sales for some time,” Hewson said.
Lockheed Martin is in the early stages of discussions with the U.S. Defense Department on a five-year performance-based logistics contract for the F-35 that Hewson said will help the company reduce the cost per flying hour of the aircraft to $25,000 by 2025. This contract will also help improve margins in the sustainment work, she said.
Even though initial development of the aircraft is complete, there continues to be modernization and upgrade efforts to cope with evolving threats and integrate new weapons systems, Hewson said.
“As you look at the ramp up of sustainment, you look at continued development opportunities and activities that are going on with the program, this program is really in a solid situation of growth and contributing to sales for many years to come,” she said.
Hewson will retire as Lockheed Martin’s president and CEO on June 15 and remain as executive chairman, helping incoming president and CEO James Taiclet with his new duties. Hewson expects to remain as executive chairman at least through the end of 2020, she said.
Taiclet is currently chairman, president and CEO of American Tower Corp. [AMT], a global provider of telecommunications real estate for wireless infrastructure. He is also a member of Lockheed Martin’s board.