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Lockheed Martin on Jan. 28 became the third U.S. defense prime contractor to report billion-dollar losses on previously awarded fixed-price development and production contracts in a year.
The Bethesda, Maryland-based company reported a $1.3 billion reach-forward loss on a classified program within the Missiles & Fire Control (M&FC) business and a $410 million charge on a classified project inside the Aeronautics division.
Lockheed did not identify the projects, citing government classification rules. The U.S. Air Force has previously confirmed that M&FC is developing the AIM-260 Joint Advanced Tactical Missile, which has a hybrid classification status with most other details withheld as secret. The Aeronautics unit has described its classified program only as a “highly complex design and systems integration” project.
The latest charges raise Lockheed’s historic losses to $1.4 billion on the classified program in M&FC. All losses reported so far on the classified Aeronautics program now add up to $825 million.
Lockheed’s charges follow a familiar cycle for fixed-price development and production contracts awarded by the Defense Department and NASA in the previous decade. Boeing’s reach-forward losses on five such programs awarded since 2011 now total more than $18 billion. Last year, Northrop Grumman also posted a $1.56 billion charge on the fixed-price production phase of the B-21 Raider bomber program.
Lockheed executives told analysts on a Jan. 28 earnings call that the latest reach-forward charges account for anticipated losses in the future, including some that might be formally booked on the company’s balance sheet in two-three years.
Jim Taiclet, Lockheed CEO, also assured the Wall Street analysts that the M&FC program will reap rewards after the losses with a lengthy production run.
“We expect this to be a long-lived program based on the technology and the value to the U.S. government,” said Taiclet, who once flew C-130s in the military. “As an ex-Air Force pilot, I can assure you this is something they will want.”
But Lockheed’s latest charges surprised some analysts, who had already priced in the risk of further billion-dollar losses with the company’s defense competitors.
“Lockheed is just the latest of the major U.S. defense primes to have felt the negative impact of fixed-price development contracts that they would probably not be signing today,” Vertical Research Partners analyst Robert Stallard said in a research note to investors.
“The worry that we have is that these problem programs rarely get wrapped up quickly, and could remain a risk to earnings and cash flow in the medium term,” Stallard added.
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