October 24, 2012 / 9:37 PM / 5 years ago

Lockheed sees "great progress" on F-35 fighter

WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N) on Wednesday said it was making “great progress” on the F-35 fighter jet program, with F-35 deliveries exceeding those of F-16 fighters and C-130J transport planes combined for the first time in the third quarter.

Chief Operating Officer Chris Kubasik, who takes over as CEO next month, said there were 94 F-35 jets in various stages of production at Lockheed plants in Fort Worth, Texas and Marietta, Georgia, plus a final assembly plant in Italy run by Alenia, a subsidiary of Finmeccanica SpA SIFI.MI.

He said the program, restructured three times in recent years to slow production and work out lingering technical challenges, had completed nearly 1,000 test flights in total. Test flights were 25 percent ahead of plan as of September.

“This program is making great progress and it really has a lot of momentum,” Kubasik told reporters on Wednesday during a discussion about Lockheed’s third-quarter earnings.

He said labor costs were coming down faster on the F-35 program than any previous fighter jet program in over 40 years. Lockheed is on track to hit its target unit “flyaway” cost, excluding development, of $67 million in fiscal 2012 dollars by 2018, he added.

The program was in the limelight again last month, when the Pentagon’s future F-35 program manager, Major General Christopher Bogdan, said ties between Lockheed and the government were the “worst” he’d ever seen.

Kubasik said Bogdan visited Lockheed’s mammoth Fort Worth plant last week for what officials described as a “very productive” visit. This week, the new Air Force Chief of Staff General Mark Welsh, toured the plant.

Chief Executive Bob Stevens, who retires at the end of the year, said the F-35 program was challenging from the very beginning since its three variants will replace 10 warplanes now in service. He said Lockheed was working closely with the government to resolve remaining challenges.

“We will do everything that we must do to have very high quality relations and get everything about this program right because the stakes for the country and for our friends and allies are just too damned high to set the bar anywhere else,” Stevens told analysts during a separate call.

He said the program had an unprecedented level of transparency which was good, but also sometimes had “lousy” consequences since people came to the wrong conclusions about how difficult it would be to resolve a technical issue.

“We’re happy to pick yourselves up and move ourselves forward,” he said. “When we’re not doing well we’ll redouble our efforts to get this right.”

Chief Financial Officer Bruce Tanner told analysts that Lockheed expected to finalize a contract with the government for a fifth batch of fighter jets in the fourth quarter, which would help free up initial funding for the sixth batch of fighters.

    Lockheed and the Pentagon have been negotiating the fifth production contract since December 2011, but Kubasik said Lockheed was still responding to requests for information from the government.

    One government official who is close to the negotiations said the contractual process had been exceptionally trying, with Lockheed often providing reams of extraneous data instead of simply providing the cost data that had been requested.

    Kubasik told reporters that work on those planes was already 50-percent completed under an earlier preliminary contract, which meant the government could assess actual production and labor costs on the program, as opposed to relying on estimates.

    He said Lockheed had also reworked a computerized logistics program after it ran into security challenges earlier this year. He said work on the system, known as the Autonomic Logistics Information System (ALIS) was 94 percent complete, and it was being tested now at Edwards Air Force Base in California.

    The Marine Corps needs the software to be working when the first F-35 arrives at an air base in Arizona next month to kick off creation of the first operational F-35 squadron.

    “By all accounts people are very satisfied with the progress we’ve made on ALIS,” he told reporters.

    Kubasik said the Pentagon had also approved Lockheed’s plan for fixing a troubled cost-tracking system, and he expected the Pentagon’s Defense Contracts Management Agency to scale back its withholding of payments on the program from 5 percent to 2 percent early next year.

    Reporting By Andrea Shalal-Esa; editing by Andrew Hay

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