The coronavirus pandemic will disrupt production of Lockheed Martin’s F-35 Joint Strike Fighter as its U.S. and international suppliers grapple with sick workers, stay-at-home orders, and shipping delays, company executives said Tuesday.
The problems could cost the company $375 million in projected sales this year, Lockheed CFO Ken Possenriede said on a Tuesday call with Wall Street analysts to discuss the company’s first-quarter earnings. The company is also bracing for disruptions within its missile projects as it is unable to get an increasing number of parts from its suppliers.
“We are beginning to experience some issues in each of our business areas related to the coronavirus, primarily in access to some locations and delays of supplier deliveries, which have caused us to adjust our full-year sales outlook,” Lockheed CEO Marillyn Hewson said on the call.
Lockheed’s supply problems are one of the first visible signs that the defense industry is not immune to the kind of coronavirus-related disruptions that have decimated the retail, travel, and hospitality sectors. Lockheed’s defense-sector competitors are scheduled to report first-quarter earnings over the next two weeks.
In regulatory filings over the past two months, Raytheon Technologies, Northrop Grumman and General Dynamics, have said COVID-19 could reduce sales and performance. Boeing has been among the hardest hit by coronavirus; it had to stop work at military and commercial factories in Washington state, South Carolina, and Pennsylvania.
“Our current expectation is that the next few months will be the peak of disruption as the country and the rest of the world looks to successfully flatten the curve and move forward,” Possenriede said.
Even though F-35 delivery delays could cost the company hundreds of millions of dollars in sales, Lockheed still expects to log between $62.35 billion and $64 billion in 2020. That’s down from its January projection of 2020 sales between $62.75 billion and $64.25 billion. Despite the slight sales decline, the company expects to make between $6.8 billion and $6.95 billion in profits, the same range predicted in January.
For Lockheed, any F-35 disruption could be bad for business since the stealthy fighter jet — being purchased by the U.S. and more than a dozen allies — accounts for about a quarter of its annual sales. Over the past two months, coronavirus forced F-35 factories in Japan and Italy to temporarily close. So far, coronavirus has not affected Lockheed’s F-35 assembly line in Fort Worth, Texas — which builds the lion’s share of jets each year — but that could change.
“There’s likely going to be some production impacts at our [F-35] site,” Possenriede said. “There’s more analysis that we’re going to do over the next couple of weeks working with our supply chain and our Fort Worth production line and our customers to determine if any impact and [to] what extent it will be on the program including deliveries.”
A number of F-35 foreign and domestic F-35 suppliers have not filed the required invoices documenting their work, Possenriede said, noting “probably most of it is COVID-related.” Development of new technology for F-35 jets has not been affected.
But Lockheed executives are closely monitoring the company’s missile business. A week ago, about 6 percent of its suppliers were projecting coronavirus-related issues. That number increased to 10 percent this week, Possenriede siad.
“They had two suppliers that had closed operations,” he said. “One of them we’re still working through second sources and also containment plans for them. And another one had an operation in Mexico. We worked through that and got that one open. So we feel good right now where Missiles and Fire Control is … from a guidance standpoint.
The Pentagon has asked the Mexican government to open up factories that build parts for U.S. weapons.
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(c) 2020 By National Journal Group, Inc.
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