U.S. Resumes F-35 Deliveries but Withholds $5 Million Per Jet Pending Technology Upgrade

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On Thursday, the F-35 Joint Program Office announced that deliveries of the F-35 jets to the U.S. military have resumed. However, the U.S. government will withhold the final $5 million payment for each jet until a long-delayed technology upgrade is completed. This development comes after a months-long pause in deliveries, during which issues with the jet’s Technology Refresh 3 (TR-3) were identified.

The TR-3 upgrade encompasses significant enhancements to the F-35, including improved displays, expanded computer memory, and enhanced processing power. These upgrades are designed to bolster the jet’s performance and capabilities. Despite resuming deliveries this summer, the TR-3 improvements have experienced delays, impacting the overall schedule.

Deliveries of the F-35 jets trigger a payment to Lockheed Martin (LMT.N), the jet’s manufacturer. However, the decision to withhold $5 million per jet will affect Lockheed Martin’s profit margins. The company has acknowledged that resolving these technology issues will take additional months, potentially impacting its financial performance. The F-35 program is a crucial revenue stream for Lockheed Martin, contributing approximately 27% of its total sales.

Lockheed Martin plans to deliver around 100 F-35 jets to the U.S. this year and expects to increase deliveries to more than 150 jets by 2025. The average cost of each F-35A variant is $82.5 million for deliveries scheduled in 2023, 2024, and 2025. The short takeoff and landing “B” variant and the Navy’s “C” variant, intended for aircraft carriers, cost approximately $109 million and $102.1 million, respectively.

Jim Taiclet, CEO of Lockheed Martin, highlighted the F-35 program as a top priority. On a recent earnings call, he stated, “We recently delivered the first TR-3 configured aircraft to the customer and anticipate deliveries for 2024 to fall within our expected range of 75-110 F-35s.” Despite the recent delivery pause, Lockheed Martin expects to resume a steady flow of deliveries, addressing the backlog of F-35s that were halted due to production and scheduling issues.

The F-35 program, known for its advanced stealth technology, has faced several delivery delays and production challenges in the past. The current situation underscores the ongoing complexities involved in upgrading and delivering this sophisticated fighter jet. The U.S. government’s decision to withhold payments until the TR-3 upgrades are completed reflects a commitment to ensuring that the aircraft meets its advanced performance standards before final payments are processed.