As frenetic stock-picking, carnival barker Jim Cramer, host of CNBC’s Mad Money, says: listen to company quarterly earnings reports, you can learn a lot. On Lockheed Martin’s 2nd quarter conference call yesterday, CEO Bob Stevens told Wall Street analysts (transcript here) the F-35 Joint Strike Fighter program was at a “critical juncture” as it transitions from development into production.
The systems development and demonstration phase is about 80 percent complete, he said. Of the 19 planned test aircraft, 15 have been delivered; only 13 will actually fly, the others are for structural tests. Nine of the “flyers” have so far completed a total of 136 test flights: the F-35A has flown 56 times; the F-35B short-takeoff and landing version has flown 74 times: and the carrier variant F-35C has flown six times.
While the 74 test flights of the F-35B might look impressive, its actually behind schedule; it was supposed to have flown 95 times by now, Stevens said. “Higher than predicted” failure rates of component parts have grounded some F-35B test aircraft. Stevens described the failing parts as sub-components, not major parts such as the engine, which has been performing well.
“The components that are failing are more of the things that would appear either smaller or more ordinary like thermal cooling fans, door actuators, selected valves or switches or components of the power system.”
Yet, testers have had to pull the engines out to access those failed components and the follow-on maintenance has taken far longer than expected, Stevens said. Lockheed and its suppliers are trying to figure out whether the problems lie in botched manufacturing (Friday jobs), whether the design of the parts must be changed or whether the program needs to buy more spares. Stevens said the problem is fixable.
On the production side, Stevens said 31 airplanes are in various stages of assembly. “We continue to see improved cost performance… I think it’s fair to say that the production cost trends overall remain on the favorable side of prior estimates which is where we all want them to be.”
Crackerjack Morgan Stanley aerospace analyst Heidi Wood asked Stevens about F-35 requirements creep, which has been the death knell for many a program. “[T]he hardware is progressively locking into a good configuration,” he said, “and there are no major technical showstoppers to date on the program.”
“I know the numbers of airplanes are big, the size of the program is large, and therefore the cost numbers are significant… But again, I want to disabuse you of any sense you might have that requirements turn or creep are driving either our performance on the airplane or within the program or the overall cost of the program because that’s really not a source of cost concern at present.”
As for international sales, Stevens threw around a bunch of notional figures, muttered something about European commitments among declining defense budgets and said there is “growing” interest in Asia, including Japan, Singapore and South Korea, and the Middle East.
— Greg Grant