South Korea Lines Up for Lockheed Martin’s F-35
It’s been a roller-coaster ride for Lockheed Martin (NYSE:LMT) over the past few months. Shares of the aerospace and defense company, up about 9.5 percent this year to date, are down about 3.75 percent over the past 30 days.
The period begins with a late-February selloff. Shares fell more than 3 percent in two days after it was reported that the bulkhead of Lockheed’s F-35 fighter jet cracked during prolonged stress testing. The development isn’t expected to delay deliveries of the aircraft to the U.S. Marine Corps, scheduled for 2015, but it does mean more testing and perhaps some expensive edits to the manufacturing process.
“We consider this significant, but by no means catastrophic,” said the Pentagon’s chief, Frank Kendall, in a statement in February. “Root cause analysis is still ongoing, however based on preliminary analysis a redesign of the affected F-35B structural members will be required.” A new design is being tested this month, but aircraft that have already been fielded will need the bulkhead to be reinforced. The reinforcements are expected to add at least two pounds to the weight of the aircraft, and it’s unclear if the redesign will add any weight.
The issue has apparently not fazed the South Korean military, which is reportedly committing to a purchase of 40 F-35 fighter jets. Two sources familiar with the matter told Reuters that South Korea expects to pay as much as 7.34 trillion won (about $6.79 billion) for 40 jets, scheduled to be delivered in 2018. The deal is expected to be finalized in the third quarter of 2014.
Lockheed Martin bills the F-35 as the most effective fighter jet on the market today. Unit Recurring Flyaway costs are expected to trend downward toward $85 million, but this expectation is “rosy,” according to the South Korean military. Buyers are still generally optimistic, though, and South Korea is the 10th country to commit to an F-35 purchase.
But the bulkhead problem and ongoing concerns about the F-35′s software may have contributed to some pullback from would-be buyers. South Korea reduced its order down from 60, while Italy reduced its order by 30 percent to 90 aircraft, and could reduce it even further.
Problems with the software being developed for the F-35 were recently highlighted by the U.S. Government Accountability Office. The pace of development could lead to production delays as well as increase costs in a program that is already way over budget. According to Reuters, Air Force Lt. Gen. Chris Bogdan has indicated that software is the number one issue facing the massive F-35 program.