Lockheed CEO: Trump Accelerated F-35 Price Drop

When President Donald Trump claimed at the end of January that his negotiations with Lockheed Martin executives were responsible for a $600 million savings in the most recent lot of 90 F-35 Joint Strike Fighters, critics were quick to point out that officials with the program had predicted the cost drop more than a month before.

But in a brief with reporters Tuesday, Lockheed CEO Marillyn Hewson said Trump was justified in taking credit for accelerating the deal-making on the F-35 lot and emphasizing a lower price point.

"If you think about his focus and his long-term trend of increasing more spending in national security and on defense spending, the F-35 is the largest program that the Department of Defense has in its budget," Hewson said. "So for him to focus on the F-35 and to focus on how he can get the best price for the taxpayer going forward, I think, was perfectly appropriate."

Trump's involvement in discussions on low-rate initial production (LRIP) lot 10, she said, had "absolutely" made a difference in the timing and outcome of the agreement between Lockheed and the Department of Defense on the aircraft buy.

"He helped accelerate that along, and I think he put a sharper focus on price and how we drive the price down," she said. "He absolutely did contribute to us getting to closure on that."

The LRIP 10 agreement followed the Defense Department's unilateral contract announcement in November on the previous F-35 lot, LRIP 9, after months of fruitless negotiations. Lockheed released a statement condemning the move, and Joint Strike Fighter program chief Air Force Lt. Gen. Chris Bogdan in December expressed a desire to reach a "handshake" deal on LRIP 10.

Bogdan said at the time that he expected the cost of the aircraft in the lot to drop an average of 6 to 7 percent due to economies of scale as more planes were manufactured and purchased. With F-35 variant costs previously hovering upwards of $100 million per unit, Bogdan's prediction would have resulted in an overall cost reduction of about $600 million.

Hewson acknowledged that the F-35 cost will continue to fall of its own accord in future lots as more aircraft roll off the production line.

"I will admit that as we are wrapping up the program we will continue to see cost reductions just through volume," she said, noting that the program has a goal of reaching a price tag of $85 million or lower by 2019 for the F-35A  --  the least expensive and most common variant of the Joint Strike Fighter.

Lockheed executives have more than one reason to be pleased about Trump's interest focus on defense since taking office. She credited "the President Trump effect" with an increased interest by foreign nations in boosting their own defense spending.

"NATO members are considering the shifts of U.S. priorities, and many see a great need to shoulder more of their own defense burdens," she said. "This is significant. In fact, if NATO members fulfill their own stated pledges to spend 2 percent of their GDP on defense, it could result in a $100 billion increase in spending across the alliance."

Trump has repeatedly emphasized his desire to see U.S. allies shoulder more of the responsibility of paying for their own military defense. In an address to Congress in early March, he took credit for boosted NATO defense spending, saying "money was pouring in" as a result of his comments. Here too, the facts are in dispute: NATO officials have said the commitment by allies to increase their spending has been in the works for years.

Lockheed may have significant business to gain from this spending boost. In 2016, more than 40 percent of the company's business -- more than $12.7 billion -- came from international customers, Hewson said.