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GAP INC (GPS)

Delayed Quote. Delayed  - 02/10 04:00:33 pm
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Pentagon Still Plans F-35 Increase --update

02/10/2016 | 07:58pm US/Eastern
By Doug Cameron 

Plans by the Air Force to trim its F-35 Joint Strike Fighter order this year won't affect a planned long-term increase in output to make the plane more affordable, a senior Pentagon official said Wednesday.

Production is expected to rise from more than 50 this year and climb every year until the mid-2020s, peaking at 160 to 170 jets, Gen. Chris Bogdan, the military chief of the F-35 program, told reporters.

Boosting production is crucial to efforts to reduce the average cost of the radar-evading jets as the Pentagon looks for more export deals at a time when the U.S. has again slowed its own purchases.

The Pentagon had at one point hoped to build as many as 200 jets a year, though the proposed rise to 170 is at the top end of many analysts' forecasts. The defense department budget for fiscal 2017 cut more than $11 billion from weapons spending, including five F-35s.

Gen. Bogdan's comments contrasted with concerns raised this week by a senior Pentagon official about efforts to boost production.

"It's unclear we'll be able to get this program back to the [production] ramps that we had hoped for previously," Pentagon Comptroller Mike McCord said Tuesday.

Lockheed Martin Corp., the lead contractor, delivered 45 planes last year and expects this to rise to 53 in 2016 and to around 100 from 2018.

"The program right now is accelerating, growing and changing" Gen. Bogdan said. He said that this week's move to trim orders for the Air Force wouldn't harm the effort to cut the average cost of the main model to between $80 million and $85 million, by 2019, when adjusted for inflation. This compares to around $100 million for the batch currently being negotiated.

Gen. Bogdan said he expected to reach a final agreement in March with Lockheed on the next round of aircraft.

The Pentagon reached a preliminary deal with United Technologies Corp's Pratt & Whitney unit last month for two more batches of engines for the jets.

He said efforts to secure a three-year deal potentially covering hundreds of jets and land two new overseas customers could cut the cost further. The Pentagon has pushed back plans for a block-buy of the planes by a year until fiscal 2019.

The Pentagon plans to invest up to $100 million during the next year on cost-cutting efforts, building on the combined $170 million spent by Lockheed and its two largest partners-- Northrop Grumman Corp. and BAE Systems PLC--during the past three years on reducing the cost of the plane.

Gen. Bogdan said he expected overseas deals would fill most of the gap left by the Pentagon's reduced purchase. He forecast total domestic and international sales of 873 jets between now and 2021--20 fewer than expected a year ago.

However, this includes a hoped-for deal involving as many as 60 jets from Canada, whose new Liberal government has reopened a long-running competition to supply new jets.

The defense department cut weapons spending from its fiscal 2017 budget to focus resources on the new Air Force tanker being built by Boeing Co., a new bomber contract awarded to Northrop Grumman Corp.--which is being protested by Boeing and Lockheed--and work on a new ballistic missile submarine.

The Air Force is due to declare the F-35 combat ready in August, while Israel, the first overseas customer, is due to receive its initial planes in December.

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