LMT Lockheed Martin Corp

By Doug Cameron 

The Pentagon said Friday it has reached a deal for the next batch of F-35 combat jets, broadly in line with its price target before President Donald Trump started criticizing the cost of the program.

The planned deal for 90 jets with program leader Lockheed Martin Corp. prices the F-35A model of the planes used by the U.S. Air Force and overseas allies at $94.6 million each, a 7.3% drop compared with $102 million for the prior batch.

The Pentagon said the terms mark a reduction of $728 million from the previous deal, which the Defense Department imposed on Lockheed after more than a year of talks failed to yield an agreement.

Lockheed and Mr. Trump had previously talked of $600 million in savings between the two batches, but the prices reported by the Pentagon include engines, which were negotiated under separate agreements with United Technologies Corp.

In December, then President-elect Trump started criticizing the cost of the plane as "out of control." Since then, he has met with Lockheed Chief Executive Marillyn Hewson, and the world's largest defense company recommitted to cutting the F-35's price.

The F-35 is the Pentagon's most expensive program ever, with a forecast cost of almost $380 billion to buy more than 2,400 jets over the next several decades. Operating costs push the projected cost to $1 trillion.

The F-35's cost has fallen with each deal, and the Pentagon last year imposed a contract on Lockheed that priced each F-35A at $102 million. The Pentagon said at the time that it expected the price of the next batch of the jets to fall 6% to 7% in the deal now being negotiated.

Lockheed Martin last month sought to reassure investors that the F-35, its largest program, would become more profitable despite pressure to cut costs.

Lockheed last month said it expects the next group of F-35s to cost less than $100 million each, matching a Pentagon target that existed before Mr. Trump's criticism. Ms. Hewson said on an investor call that Lockheed is close to a deal with the Pentagon to sell 90 more planes, including the F-35A model being used by the U.S. Air Force, at a price of less than $100 million.

The company hopes this year to secure contracts for another batch of the jets. It expects profit margins on the plane to continue rising, by nearly 1 percentage point this year compared with 2016, and catch up with those of its existing military jets such as the F-16.

The Pentagon's goal is to cut the cost of the main version of the plane to $85 million in inflation-adjusted dollars by 2019.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

February 03, 2017 13:56 ET (18:56 GMT)

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