Government watchdog: F-35 will take millions
more, months longer than expected
APR 25, 2017, 6:57 AM
The Government Accountability Office released a report on Monday warning
the Department of Defence against funding further software updates for the
already $US400 billion F-35 program until the current software becomes
operational.
The F-35 is already operational with the Air
Force and Marine Corps, but it runs a limited version of its software, called
the 3i block, which only provides 89% of the code
required for full warfighting potency.
Meanwhile, as the US keeps buying the jets,
Lockheed Martin, the F-35’s primary manufacturer, is scrambling to provide 100%
of the code with their planned 3F update.
At a conference earlier this year, Lockheed
Martin told Business Insider they hoped to have the updated software loaded
into the factory and ready to go on new jets by the end of 2017, but the GAO
found that claim unlikely.
“Program officials optimistically estimate
that the program will need an additional five months to complete developmental testing,”
the statement reads. But “according to best practices” and “credible
estimates,” the GAO pegs that number at around 12 months.
And while F-35 program officials admit the
delay will cost an additional $US532 million, GAO cites $US1.7 billion in cost
overruns with “approximately $US1.3 billion of which will be needed in fiscal
year 2018.”
One reason the F-35 costs ramp up so quickly,
according to the report, is a high level of concurrency between the F-35’s
development, testing, and procurement. Essentially, all three of those
processes take place simultaneously, unlike past defence projects, so a delay
in development immediately hurts testing, which then hurts procurement.
Lockheed Martin officials have told Business
Insider that the best way to save money on the program would be a large
investment allowing them to buy bigger blocks of F-35s at once, thereby
leveraging economies of scale.
But the GAO recommends the opposite —
essentially saying the F-35 should not put out request for proposals on the
even further out block 4 of F-35 software until they can complete the 3F, base
their estimates on historical program data, and resubmit a revised budget to
Congress.
As many experts and US service members have
told Business Insider, the military awaits the full combat potential of the
F-35 for national security reasons as adversarial nations like Russia and China
field advanced aircraft and threats of their own.
The F-35’s block 4 of software promises to
open up the full range of combat potential inherent in the F-35, including
expanding the jet’s arsenal to include nuclear weapons.
President Donald Trump has already weighed in
several times on the F-35, with Lockheed Martin’s CEO Marillyn Hewson telling
Business Insider in March that his involvement in a previous F-35 buy helped
save hundreds of millions of dollars.
Original post: businessinsider.com
Lockheed Martin: Shrinking Yields
Apr.25.17 | About: Lockheed Martin (LMT)
Summary
Lockheed Martin trades down following Q117
results.
The recent stock gains sit squarely on
multiple expansion and not exactly value creation by the defense company.
The shrinking yields highlight how investors
are getting less value for the stock above $270.
Lockheed Martin (NYSE:LMT) is down nearly $8 after a
mixed Q117
earnings report.
Despite very bullish news for the defense sector over the
last few months, my investment
thesis hasn't changed much.
The stock is trading back down below $270 as
the rally to new all-time highs stalls. Is now really the time to chase
Lockheed Martin higher?
The headline numbers suggest that the defense
company missed EPS estimates by a wide $0.18 margin. The reality is that a
couple of one-time charges cost Lockheed Martin roughly $0.39 so the real issue
is that revenues missed targets by $170 million.
Very noteworthy is that the company raised
operating cash flows for the year to $6.0 billion, up from $5.7 billion. The
lowered EPS guidance was due entirely to the one-time charges that Lockheed
Martin doesn't adjust out of the reported numbers.
So while the headlines are problematic with
the actual reality, the numbers further highlight the extremely stretched
valuation. The company raised 2017 revenue guidance that still sits only
slightly above 6% growth for the year while the stock trades at an incredible
22x EPS guidance for the year.
The reality is that a lot of the stock gains
have come from expanded P/E multiples over the last year. If Lockheed Martin
traded at the same forward P/E multiple as the start of 2016, the stock would
trade closer to $210, not $270.
Source: seekingalpha.com
Related post:
F-35 Lightning II: Details
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