Lockheed Martin Says Protracted F-35 Contract Talks Weigh on Cash -- Update

By Robert Wall and Lisa Beilfuss 

Protracted contract talks between the Pentagon and Lockheed Martin Corp. over the next batch of F-35 combat jet planes are a drag on the military contractor's cash and could force it to take out extra loans to keep paying suppliers, the company's chief financial officer said.

Negotiations over the multibillion-dollar, 160-aircraft deal have been dragging for months as the sides haggle over what it costs to build the planes. Absent a contract, Lockheed Martin has been using its own money to keep production going.

"We will not be able to continue and have that level of cash outflow," Lockheed Martin Chief Financial Officer Bruce Tanner Tuesday said as the Pentagon's biggest arms supplier by sales reported second-quarter earnings.

Lockheed Martin hopes to complete the contract or get an alternative funding arrangement to help recoup cash before year-end, he said, having fronted $900 million.

If Lockheed Martin were forced to continue paying suppliers out of its own pocket, it may have to turn to commercial lenders to help finance the payments, Mr. Tanner said. That would entail higher cost which, he suggested, could also impact the government.

The government's F-35 program office couldn't immediately be reached for comment.

The F-35 Joint Strike Fighter is the Pentagon's most expensive weapons program. The stealthy combat plane also is being bought by a number of other countries, including the U.K., Israel and Turkey.

Lockheed Martin Chief Executive Marillyn Hewson said she didn't see the failed coup attempt in Turkey over the weekend harming the company's business prospects there. "We have not seen any indication it will impact the F-35 or any of their other programs," she said on an analysts call.

Despite the cash concerns on its biggest program, Lockheed Martin further lifted its forecast for the year as the company logged higher F-35 jet fighter deliveries and benefited from sales in its recently acquired Sikorsky helicopter unit. It still generated $1.5 billion cash from operations in the period.

In its latest quarter, the company said higher F-35 sales pushed revenue in its aeronautics business, its biggest, up 5.9% to $4.38 billion. Meanwhile, revenue in its mission systems segment surged 53% thanks to Sikorsky. Performance in those two segments offset lower sales in the company's IT and space systems businesses.

Overall, Lockheed reported a profit of $1.02 billion, or $3.32 a share, up from $929 million, or $2.94 a share, a year earlier. Revenue increased 11% to $12.91 billion.

Analysts anticipated $2.93 in earnings per share on $12.55 billion in sales.

Maryland-based Lockheed has been working to reshape its business as it looks to focus on more profitable work building military jets, helicopters and missiles. Last year Lockheed bought helicopter maker Sikorsky Corp. for $9 billion, and it said earlier this year that it would divest its big government information-technology unit and merge it with Leidos Holdings Inc., a deal the company said Tuesday is on track to close in the third quarter.

For the year, Lockheed now expects to report $12.15 to $12.45 in earnings per share, up from an earlier prediction of $11.50 to $11.80 a share. The company expects to log $50 billion to $51.5 billion in revenue this year, higher than its previous $49.6 billion to $51.1 billion forecast.

Write to Robert Wall at [e-mail] and Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

July 19, 2016 14:20 ET (18:20 GMT)

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