Trump attack on Lockheed Martin foreshadows war on defense industry

© Reuters. U.S. President-elect Donald Trump speaks at the USA Thank You Tour event at the Iowa Events Center in Des Moines, Iowa© Reuters. U.S. President-elect Donald Trump speaks at the USA Thank You Tour event at the Iowa Events Center in Des Moines, Iowa

WASHINGTON (Reuters) – Donald Trump on Monday widened his attack on defense contractors, slamming Lockheed Martin’s F-35 fighter jet program as too expensive as aides to the president-elect said he intends to keep pushing to cut the costs of military hardware.

Lockheed shares (N:) dropped 3.4 percent and other defense contractors also tumbled.

“The F-35 program and cost is out of control,” Trump said on Twitter, echoing campaign promises to cut waste in federal spending. “Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

Last week, he also used Twitter to target Boeing Co (N:) for its “out of control” costs on a new fleet of Air Force One planes, urging the federal government to “Cancel order!”

U.S. Senate Armed Services Committee Chairman John McCain backed Trump’s criticism of the F-35’s costs.

McCain, who has voiced support for the F-35 in the past, said a U.S. president cannot cancel a program for which funds have been allocated, but can reduce its purchase over time.

“He can reduce the buy over time, next year, as we look at it again,” McCain told Reuters.

The verbal attacks on Boeing and Lockheed Martin raised concerns the Trump administration will threaten defense contractors’ profit margins.

“I would expect this to be wide-reaching and impact all of government as we look to come up with better deals,” Trump transition spokesman Jason Miller said. “Some of these deals that have been in place, we’re going to look for opportunities to go back through and make sure that we’re not getting taken advantage of.”

Unwinding a program of this size, involving contractors in nearly every state and eight partner nations, was unlikely, Baird Equity Research analyst Peter Arment wrote in a note Monday.

“But what is likely … is the message to the industry of potentially more risk-sharing on costs. This is potentially a new paradigm for the industry.”

Lockheed Martin’s F-35 program leader, Jeff Babione, responded by saying the company understands concerns about affordability and has invested millions to reduce the jet’s price.

Babione said Lockheed’s goal was to reduce the price of the F-35 by 60 percent from original estimates. “We project it to be about 85 million dollars in the 2019 or 2020 timeframe,” he told reporters in Israel.

A week before Trump won the Nov. 8 presidential election, the U.S. Defense Department and Lockheed concluded negotiations on their ninth contract for 90 F-35 fighter jets. Lockheed won the contract, valued at up to $ 7.18 billion, in late November and has received an interim payment.

The Pentagon is paying about $ 102 million each for the conventional takeoff A-model jets being built for the U.S. Air Force, Israel and many other countries, according to sources familiar with the program. That marks savings of over 50 percent from the initial jets ordered, reflecting larger quantities and the fact that many technical issues have been ironed out.

The F-35 program has been dogged by problems, with the Pentagon’s chief arms buyer once describing as “acquisition malpractice” the decision to start producing jets before completing development. That led to a series of costly retrofits on early-production jets.

The Pentagon’s chief weapons tester has continued to criticize the program, but the jets are now in use by the U.S. Marine Corps and Air Force, and by six countries: Australia, Britain, Norway, Italy, the Netherlands and Israel. Japan took delivery of its first jet last week, according to a program spokesman.

Still, cost overruns have attracted criticism. With an estimated price tag of $ 400 billion, the F-35 program has been described as the most expensive weapon system in history.

Lockheed and its key partners, Northrop Grumman Corp (N:), United Technologies Corp (N:) unit Pratt & Whitney and BAE Systems (L:), are developing and building three variants of the F-35s for the U.S. military and its allies.

Shares of Lockheed Martin were down 3.4 percent. Shares of General Dynamics (N:), Northrop Grumman Boeing, BAE and Raytheon also fell, while United Technologies shares were flat.

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