U.S. to Delay Payments on Lockheed Jet Project

The Pentagon will put off some potential payments to Lockheed Martin Corp. for the Joint Strike Fighter as an incentive to fix schedule delays, weight problems and cost overruns, according to the military program manager.

About 20% of profit that could have gone to Lockheed by the end of 2007, or $283 million, will now be set aside for the top U.S. defense contractor in 2008 or later, Pentagon figures released to Bloomberg News show.

The aircraft is the Pentagon’s most costly weapons program ever at an estimated $244 billion. The intent is to create a low-cost family of fighters with about 80% common parts for the U.S. and the militaries of other nations. Lockheed had to redesign one version of the aircraft because it was too heavy, extending development by a year. Holding off payments will help put the program back on track, Pentagon officials said.

“We are not giving the company any money until they demonstrate that the system works,” program manager Rear Adm. Steven Enewold said in a recent interview. Payments will be made only if Lockheed meets “milestone wickets” in the development process, he said.

The decision reduces the so-called profit pool that the Bethesda, Md.-based company can potentially earn to $1.22 billion from 2004 to 2007 and raises the pool to $1.15 billion from 2008 to 2013, when the current development phase ends, the Pentagon figures show.

Shares of Lockheed fell $1.56 to $57.38 on the New York Stock Exchange.

“Earlier money is always better” because “there are some things to be put in place early in a program,” said Bob Elrod, Lockheed JSF program manager.

“We have agreed with the plan and are going forward with it. A year ago we were looking at a significant weight issue on the airplane,” but that’s now under control, he said.

“We’ve made a tremendous amount of progress,” Enewold said. “We’re in a lot better shape than we were last spring.”