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Trump attacks Lockheed's F-35 jet in blow to defense stocks

Tuesday, December 13, 2016 - 07:43

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Defense stocks plunged as President-elect Donald Trump took aim at another high-profile military program: Lockheed Martin Corp's F-35 fighter jet, the Pentagon's most expensive weapons system.

[CHICAGO] Defense stocks plunged as President-elect Donald Trump took aim at another high-profile military program: Lockheed Martin Corp's F-35 fighter jet, the Pentagon's most expensive weapons system.

"The F-35 program and cost is out of control," Mr Trump posted Monday on Twitter. "Billions of dollars can and will be saved on military (and other) purchases after January 20th," inauguration day.

Mr Trump's criticism of defense program costs has tempered a post-election rally driven by his call on the stump for a larger armed force and greater fleets of combat ships and fighter jets. He made similar complaints on the "Fox News Sunday" television program and on Saturday posted a link to a Washington Post article about a Pentagon report on US$125 billion in administrative waste.

The latest broadside reinforced Mr Trump's willingness to attack big US companies. He assailed Boeing Co last week over the development budget for the new Air Force One and had badgered United Technologies Corp over a plan to move some US jobs to Mexico in its Carrier air-conditioning unit. Carrier later pared its workforce shift after getting state aid from Indiana. He also recently vowed to drive down drug prices.

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Lockheed fell 3 per cent to US$251.83 at 1:33pm in New York. Northrop Grumman Corp, which is a major supplier to the F-35, and Raytheon Co at their worst tumbled the most since August 2015. United Technologies, whose Pratt & Whitney unit makes engines for the plane, was little changed. The Standard & Poor's Aerospace and Defense Index declined 1.2 per cent.

By targeting Lockheed, Mr Trump took aim at the world's biggest defense contractor while serving notice to budget hawks that his administration will pay attention to military cost overruns.

The remarks also signalled that the Pentagon's planned ramp-up of F-35 production this decade isn't guaranteed.

"I think one of the things we've seen over the last couple weeks with the president-elect is a continued focus on keeping costs down for taxpayers," Trump spokesman Jason Miller said during a phone briefing with reporters Monday. While plans are being determined, "I would expect this to be wide-reaching and impact all of government."

The US$379 billion Joint Strike Fighter is the first jet created to serve the vastly different combat missions of the Air Force, Navy and Marines. Like many complicated military programs, the jet has been plagued by delays and bugs in its cutting-edge technology.

The Pentagon's top weapons tester, Michael Gilmore, has warned officials in at least four memos since August that the F-35's development should be extended past next year because of continued deficiencies to its combat systems, weapons accuracy and air-to-ground gun.

Still, the perception of out-of-control costs isn't accurate, according to Byron Callan, a defense analyst at Capital Alpha. "We don't believe investors should panic over the program's prospects based on a single Trump tweet," he said in a note to clients Monday.

The F-35's costs have already fallen by 60 per cent, according to Lockheed Martin, and by decade's end the company expects to manufacture the aircraft for about US$85 million each. That's the same expense as less-capable fourth-generation fighters.

"We understand the importance of affordability, and that's what the F-35 has been about. But more importantly, it's the amazing technology," Jeff Babione, executive vice president and general manager of the F-35 program, said Monday. "We look forward to any questions the president-elect may have."

Lockheed and its suppliers have poured billions of dollars into an effort to bring per-plane production costs in line with current generation fighters, slicing US$19.6 billion from the program's total bill since 2014. The total estimated acquisition cost has fallen by 4.9 per cent to US$379 billion.

"My memory goes back seven years ago to a development program way over cost and way behind," Defense Secretary Ashton Carter, who was the Pentagon's top weapons buyer at the time, said in February. After much effort, the fighter jet is on track to become "what it's supposed to be: not only the best tactical aircraft in the world, but the most affordable."

The F-35 Lightning II is Lockheed's largest source of revenue, accounting for 20 per cent of sales. The company also is counting on the stealthy fighter to propel its international growth. Beyond the Pentagon, more than 600 additional aircraft are to be sold to partners such as the UK, Australia, Japan and Italy.

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