Lockheed Martin Corp. (LMT) is confident it can win new
customers for its F-35 Joint Strike Fighter to meet a key sales
goal even if existing buyers reduce or defer their orders, a senior
executive said Monday, as South Korea announced it had allocated
funds to purchase 40 of the jets.
South Korea set a budget of about $6.8 billion for the planned
acquisition. It is among the biggest international orders for the
F-35, though the initial order is smaller than the 60 fighters
Seoul originally envisioned buying. South Korea plans to purchase
20 more fighters as it updates its aging air force fleet, but the
choice of jets--not restricted to Lockheed--and the schedule
haven't been decided.
Seoul's planned purchase would bring the number of F-35
customers to 10 nations, including the U.S.
"There's opportunities to increase that" number of countries,
said Steve O'Bryan, Lockheed's vice president for business
development, who said that customers are becoming more confident in
Lockheed's ability to control costs for the plane, and identifying
Singapore as one target market.
International orders are crucial for Lockheed, which expects the
F-35's share of its total revenue to increase to around 25% over
the next five years from 15% in the face of a flat U.S. defense
budget that has trimmed sales of other weapon systems.
The company expects around 45% of F-35 orders over the next five
years to come from international customers. But some existing
buyers have indicated they may alter existing deals because of
domestic budget constraints. Italy's prime minister, for example,
said this month that the country should consider "significant cuts"
to its existing order for 90 F-35s, having already trimmed the
projected buy from 131.
"There's always going to be ebbs and flows" among buyers, Mr.
O'Bryan said.
Delays in the F-35s deployment, spiraling price and lingering
technical problems have focused attention on a number of ongoing
contests among a small number of buyers, notably Denmark and
Canada. The outcome of deals each involving between 20 and 50 jets
will be crucial to determining the fate of rival fighters produced
by Boeing Co. and the Eurofighter consortium, according to
analysts.
South Korea said it expects to close its planned purchase in the
third quarter. The deal hinges on Lockheed finalizing its support
for South Korea's indigenous F-X fighter program.
Lockheed estimated in February that it could sell 539 F-35s over
the next five years, excluding the 40 jets for South Korea, with
Singapore among those eyeing a possible order. Other countries
expected to seek replacement fighters include Belgium, Finland,
Poland and Malaysia, according to defense analysts, with Greece and
Spain also seen as potential buyers if domestic budget challenges
can be resolved.
Denmark and Canada are both partners in the F-35 program --
which has yet to lose an order contest -- but are evaluating other
planes in contests set to be decided by the end of this year, or
early next year.
Canada's decision to reopen its fighter evaluation -- having
initially settled on the F-35 -- triggered a furious lobbying
battle between Lockheed and Boeing, which is seeking fresh deals to
keep its F/A-18 production line open beyond 2016.
The success of Sweden's Saab AB in winning a closely-fought
battle to supply new fighters to Brazil last year also highlighted
the increasing importance of affordability as countries evaluate
the cost of fighters with a "flyaway" cost -- which excludes any
contribution to research and development spending -- of more than
$60 million each. Saab expects its new Gripen E to cost around $43
million.
The F-35's flyaway cost remains well above $100 million, even
though it's fallen by half over the past seven years. Lockheed has
committed to bringing that to $80 million to $85 million by the end
of the decade.
"There's definitely more confidence around the flyaway costs"
among international buyers, said Mr. O'Bryan. An official update on
operating costs -- another concern among existing and prospective
buyers -- is expected from the U.S. later this year.
Separately, South Korea also confirmed plans to pay $817 million
for four unmanned aerial vehicles made by Northrop Grumman Corp.
That agreement is imminent, an agency spokesman said.
UAVs are a core component of Northrop's international sales
push, after the U.S. government loosened export restrictions on
drones such as Global Hawk and Triton. Australia has committed to
buy Triton's to patrol its waters, and the company also plans to
pitch high-altitude drones to Singapore.
Write to Doug Cameron at doug.cameron@wsj.com
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