The Pentagon awarded a deal worth up to $5.6 billion for Lockheed Martin Corp. on Friday to continue work on the next batch of F-35 combat jets while negotiations continue on a final sales contract.
The award covers work toward the planned purchase of 91 of the jets for the U.S. and another 50 for overseas allies, with the Pentagon expecting to close a deal by the end of the year.
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The two sides spent more than a year negotiating the last batch of the radar-evading fighters, with the Pentagon ultimately imposing a deal that Lockheed called "disappointing", before ultimately accepting the price and other terms.
The F-35 is by far the Pentagon's costliest weapons program and increasingly important to Lockheed, which generates almost a quarter of its revenue from the program, which includes hundreds of smaller suppliers.
Donald Trump started criticizing the cost of the program before taking office and has subsequently taken credit for driving improved terms. However, the average $95 million cost of the most common model of the jet in the last deal was broadly in line with existing cost-cutting plans.
The Pentagon said that the next batch of planes covered by Friday's deal would be even lower, and it's targeting a price of as low as $80 million each by the end of the decade as production continues to increase.
The interim contract award is important for maintaining Lockheed's cash flow, with the company in 2018 due to end a three-year pension holiday that's helped fuel profits, buybacks and dividends.
The Pentagon said it's continuing talks with F-35 engine maker Pratt & Whitney, a unit of United Technologies Corp, and also hopes to reach a final deal on the next batch by the end of the year.
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(END) Dow Jones Newswires
July 07, 2017 18:11 ET (22:11 GMT)