President-elect Donald Trump took a shot at one of the easiest targets on offer last Friday. In a TV interview Sunday, Trump called the F-35 Joint Strike Fighter program “out of control.”
Shares of Lockheed Martin Corp. (NYSE: LMT) traded down nearly 3% in Monday’s premarket after Trump’s comment. Lockheed is the prime contractor on the program that has been estimated to have a price tag of $1 trillion over the 60-year life of the F-35.
And in case anyone missed Trump’s interview, he doubled down with a tweet Monday morning:
Trump is not the only critic of the program. Earlier this year Senator John McCain (R-AZ) called the program “both a scandal and a tragedy with respect to cost, schedule and performance.” The initial purchase price had doubled to nearly $400 billion for 2,547 planes (although that number is probably lower by now). Worse, perhaps, the program was expected to deliver more than 1,000 planes by 2016. Fewer than 200 have been received.
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In a report on U.S. Air Force investment in new weapons systems, the Congressional Research Service noted that just four programs account for 99% of the Air Force’s acquisition budget for fiscal years 2016 through 2020. The four programs are the F-35, the KC-46A tanker being built by Boeing Co. (NYSE: BA), additions to the C-130 cargo carrier fleet, and the drone program.
Last April the Government Accountability Office released a report on the F-35 program that faulted the Defense Department for its plan to manage the so-called follow-on modernization program as part of the existing development program. The GAO said, “This approach does not align with best practices and will likely hinder transparency and oversight.”
Trump already had signaled his displeasure with Boeing’s contract to build Air Force One, and even threatened in a speech last week to initiate a lifetime ban on former Defense Department acquisition officials from working for a defense contractor. The remarks followed an announcement by Northrop Grumman Corp. (NYSE: NOC) that retired Air Force Chief of Staff Mark Welsh had just be elected to the company’s board of directors.
Taken together with Trump’s promises to increase defense spending, the swipes at Lockheed, Boeing and Northrop could be viewed in a couple of different ways. First, a warning shot that a Trump administration is going to monitor spending on defense programs very carefully in order to ensure that the U.S. government is getting its money’s worth. A second way of looking at these statements is as Trump’s attempt to show many of the people who voted for him that he is not beholden to any contracts made in the past and that he will do whatever will keep taxpayers’ costs in line.
Lockheed’s stock traded down about 4% shortly after the opening bell Monday, at $248.84 in a 52-week range of $200.47 to $269.90.
Northrop’s stock tumbled 5.8% to $224.43, in a 52-week range of $175.00 to $253.80.
Boeing traded higher, up 0.5% to $157.29, after posting a new high of $157.49. The 52-week low is $102.10.
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