Lockheed Martin Faces $800M Payment Delay Over F-35 Software Approval: Report

Lockheed Martin Corp LMT, the leading U.S. defense contractor, could see over $800 million in payments held back until June as it awaits approval for software crucial to its advanced F-35 fighter jet, per newly disclosed figures.

What's Happening:  The weapon maker will likely complete production of approximately 52 TR-3 model fighter jets by December 31, with plans to produce about 12 more per month until June 30, totaling as many as 124 jets, Bloomberg reported, citing data released by Russ Goemaere, the Pentagon's spokesman on the F-35.

Payment Hold: The Pentagon has decided to withhold $7 million per aircraft until the new software receives validation, as these aircraft are being put into storage until the software upgrade is complete. This amounts to $868 million for the 124 jets. In August, $7 million was reportedly withheld each for the first four upgraded F-35s.

Software Upgrade Importance: The F-35 requires the software upgrade to fully utilize new cockpit hardware, enabling it to carry more precise weapons and gather enhanced information on enemy aircraft and air defenses. The upgrade will boost processing power by 37 times and memory by 20 times compared to the current F-35 capabilities.

Lockheed's Statement: The report cited Lockheed Martin emphasizing that the TR-3 remains their top priority. They continued production of F-35s at a rate of 156 per year while simultaneously working on finalizing TR-3 software and hardware integration, testing, and delivery.

Simulator Testing: In a separate development, long-awaited testing of the F-35 in an advanced Pentagon simulator is commencing, marking the final stage of evaluations to assess the F-35's capability to counter top Russian and Chinese air defenses and fighters, the report further noted. This phase accounts for 42% of the assessment required for a passing grade.

Implications: The simulator testing is crucial before Lockheed can proceed with full-rate production. Out of a potential fleet of over 3,000 F-35s for U.S. and international customers, over 965 have been delivered, but many may require retrofitting based on test findings.

Last week, Lockheed updated its F-35 Technology Refresh 3, or TR-3, schedule projections, anticipating the delivery of the first TR-3 jet between April and June 2024. The TR-3s were likely to be delivered by 2023. While it does not expect the delays to weigh on its 2023 financial outlook, it is still assessing the impacts to 2024.

Price Action: LMT shares traded lower by 1.31% at $417.54 on the last check Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.