Lockheed, Boeing Got Half of $2.3 Billion in Pentagon Virus Cash

(Bloomberg) -- Lockheed Martin Corp. and Boeing Co. received about half of an initial $2.3 billion in increased, accelerated payments the Pentagon provided contractors to help companies’ cash flows after the Covid-19 pandemic erupted in the U.S.

The initial infusion was included in $13 billion in regular, periodic progress payments paid to the companies, according to newly released defense figures. Lockheed Martin initially received $685 million while Boeing got $670 million, according to a Pentagon statement to Bloomberg News

In a separate statement, Lockheed Martin said that modifications to existing contracts resulted in additional accelerated payments to the company, increasing its total received to $1.1 billion by June 30, “all of which we have flowed down to our supply base.”

Lockheed and Boeing are the top two U.S. defense contractors, so they were expected to get the biggest share of the funds. Other companies receiving the accelerated payments include:

• Raytheon Technologies Corp.: $410 million
• L3 Harris Technologies Inc.: $74 million
• The Boeing/Lockheed United Launch Alliance LLC: $70 million
• Northrop Grumman Corp.: $70 million

Another $321 million went to other companies.

The companies are benefiting from a policy the Pentagon announced in March, just as the pandemic was building in the U.S., that provided for faster, and bigger, payments to companies. The move was intended to guarantee that critical national security contracts -- including the production of key weapons systems and supplies -- weren’t interrupted by companies having problems accessing cash or credit. The extra funding would ensure production lines were able to stay open.

The Defense Department’s move meant that larger firms could get as much as 90% of their payments for contracts in progress, up from 80% previously. For smaller businesses, which might be more susceptible to virus impacts, the rate rose to 95% from 90%.

As the initial funds were identified, the Pentagon “worked with each of the major primes to ensure that they were identifying at risk companies in their supply chain and flowing down payments to those companies, as well as all companies doing work for the prime,” said the statement.

The major contractors “have been flowing down payments, in some cases more than the payments received from DOD,” it said.

Pentagon officials initially estimated in March about $3 billion would be paid but that number included a potential $700 million payment on a long-standing contract that further analysis deemed was not necessary.

In addition to the accelerated progress payments, the Air Force in April released to Boeing $882 million withheld from the company over current deficiencies with its KC-46 military tanker program as part of Covid-19 relief efforts.

After the program was announced, Senator Elizabeth Warren, who serves on the Armed Services Committee, expressed concern about its oversight. In particular, the Massachusetts Democrat questioned whether companies might try to divert the increased payments for stock buybacks, dividends or executive pay.

Pentagon Undersecretary for Acquisition and Sustainment Ellen Lord in a May 15 letter to Warren said that hasn’t been the case.

“Companies do not divert payments for incurred costs to share buybacks, dividends or executive salaries because contractors must have already incurred costs before they receive the increased progress payments,” Lord wrote.

©2020 Bloomberg L.P.