Lockheed Martin, the world’s largest defense contractor, reported Tuesday that its third-quarter financial results were boosted by robust sales of its F-35 Joint Strike Fighter, the most expensive weapons program in Pentagon history.
It comes as the once-troubled F-35 has crossed some critical thresholds that have put it on firmer ground, helping lift Lockheed’s aeronautics division, which saw sales increase $377 million, or 11 percent, compared with the third quarter of 2014.
Over the summer, the Marine Corps declared that its version of the advanced fighter jet, the F-35B, which can land vertically like a helicopter, was ready for combat. And a recent test of the Navy’s version on an aircraft carrier off the Virginia coast showed progress as well, officials said.
But the strong earnings also comes a day after Canada’s Liberal Party made a strong showing in national elections, delivering a victory to Justin Trudeau, who has vowed to back away from the country’s plans to buy as many as 60 F-35s.
With the Liberal Party in power, the country is expected to now buy a lower-costing aircraft, such as the F/A-18 Super Hornet made by Boeing.
In the short term, if Canada walks away from the F-35, analysts said it should not have significant consequences for Lockheed, which is based in Bethesda, Maryland. But keeping the per-plane price low requires large quantities of the plane to be purchased by international customers. And there could be long-term consequences if Canada’s decision spooks other countries.
“The [F-35] could face more competition from the F/A-18 and Dassault Rafale, both of which could be in production longer based on international orders,” defense analyst Byron Callan wrote in a note Tuesday morning. “While neither is comparable to the F-35, both represent good-enough alternatives for some countries.”
Lockheed remains confident that more countries will sign on to the program. It already has commitments from the United Kingdom, Japan, Australia and Israel, among other countries.
The next-generation stealthy fighter jet makes up about 20 percent of annual corporate revenues, and that is “expected to grow as production rates increase,” chief executive Marillyn Hewson said in a call with analysts in which she touted another strong quarter.
Net sales were $11.5 billion, compared with $11.1 billion during the same period last year, a 3.6 percent increase. Profits did not get the same lift. The company reported $865 million in earnings for the quarter ($2.77 a share) compared with $888 million ($2.76) a year earlier.
Officials predicted 2016 sales to be strong as well, despite Congress’s inability to pass a spending plan.
Lockheed executives said that the short-term continuing resolution, which funds the federal government through Dec. 11, should not have a significant impact on the company because a large portion of its backlog orders are already funded. But a year-long continuing resolution, which would prevent new programs from receiving funding, could present long-term challenges, including “contracts to be delayed, canceled or funded at lower levels,” the company said.
Over the summer, the company announced that it was conducting a “strategic review” of its $6 billion government IT and technical services businesses. On Tuesday, Hewson said that review continues and that the company should complete it by the end of the year.
It also expects to close its $9 billion acquisition of Sikorsky, the military helicopter manufacturer, which was chosen to build a new fleet of presidential helicopters. That acquisition prompted concerns from the Pentagon about consolidation in the industrial base, which some said could lead to a lack of competition and innovation.
Frank Kendall, the undersecretary of defense for acquisition, technology and logistics, recently said continued consolidation of major defense firms could eventually result “in higher prices to be paid by the American taxpayer in order to support our warfighters.”
He said he feared a future where the Pentagon “has at most two or three very large suppliers for all the major weapons systems that we acquire.”
But Hewson pushed back against that Tuesday, saying she “wholeheartedly disagrees” that consolidation is a bad thing.
“It’s not about the size of the company,” she said. “It’s about performance. . . . We wouldn’t be able to be reporting out the type of financial results that you’ve been seeing the last several years without performing well.”
On Tuesday, the State Department cleared the way for Lockheed to sell four Littoral Combat Ships to Saudi Arabia in a deal that could be worth $11.25 billion.
The company also hopes to hear this year about the outcome of another major contract, which could have a significant impact on its bottom line: the Long Range Strike Bomber. Lockheed has teamed up with Boeing on the bid, and the pair are competing against Northrop Grumman for an Air Force contract worth up to $55 billion to build as many as 100 stealthy bombers.
Earlier this year, Lockheed lost out on one of the Army’s biggest contracts in years – a $30 billion competition to build 55,000 vehicles known as the Joint Light Tactical Vehicle. But Lockheed has protested the award to Oshkosh Defense, and the Government Accountability Office is expected to rule on the protest by the end of the year.