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Lockheed Gets $1.3B F-35 Down Payment

Nov. 29, 2016
Negotiations drag on to finalize a huge contract worth up to $7.2 billion for 90 aircraft.

The Pentagon has awarded Lockheed Martin (IW500/25) $1.3 billion to continue production of the next batch of F-35s as negotiations drag on to finalize a huge contract worth up to $7.2 billion for 90 aircraft.

The $1.3 billion announced last week will cover costs incurred on long-lead work for the 10th batch of F-35s under a contract vehicle known as an undefinitized contract action (UCA). As Lockheed awaits the final Lot 10 contract award, the cash will help ensure there are no gaps in the production line.

This is the first UCA for the low-rate initial production (LRIP) Lot 10 aircraft, according to Joint Program Office (JPO) spokesman Joe DellaVedova. The Pentagon used a similar mechanism to cover costs associated with the latest LRIP, awarding Lockheed several UCAs before the $6.1 billion Lot 9 contract award was officially announced Nov. 2.

Lockheed and the government hope to reach a handshake agreement on the final Lot 10 contract in 2017, DellaVedova said.

“With a complex production line and a dynamic supply chain, it was important to obligate funds via a UCA so that no major delays would be seen in production,” DellaVedova said. “We are confident the finer terms of the LRIP 10 contract will be settled over the next few months.”

The announcement comes amid heightened tensions between Lockheed and the government over F-35 production. In an unusual move, the Pentagon issued the Lot 9 contract for 57 F-35s unilaterally, finalizing the move without first securing an agreement from Lockheed. The two had been negotiating the terms of the LRIP 9 contract for 18 months, initially planning to combine LRIP 9 and the subsequent LRIP 10 into one massive deal for about 150 aircraft at a total value of about $14 billion. But that plan apparently fell apart.

The negotiations dragged on as the two parties struggled to hash out the total contract price, including the price per jet and Lockheed’s fee, a source familiar with the negotiations said. Lockheed is obligated to execute the contract announced Nov. 2 but may choose to appeal the decision in court.

“The definitized contract for LRIP 9 announced today was not a mutually agreed upon contract,” Lockheed spokesman Mike Rein said in a Nov. 2 statement. “We are disappointed with the decision by the government to issue a unilateral contract action on the F-35 LRIP 9 contract … We will evaluate our options and path forward.”

This article originally appeared on AviationWeek. AviationWeek, like IndustryWeek is powered by Penton, an information services company.

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