Lockheed Slowing F-35 Production Amid Covid-Related Parts Delays

(Bloomberg) -- Lockheed Martin Corp. said it will temporarily slow production of the F-35, the Pentagon’s costliest weapons system, because of subcontractor parts delays stemming from the coronavirus pandemic.

Starting Saturday and possibly continuing through August, Lockheed said it will divide about 2,500 union workers at its plant in Fort Worth, Texas, into three teams, each working shifts of two weeks and one week off to avert layoffs and position the No. 1 defense contractor for a fast recovery.

The temporary shift change is a “proactive measure” designed for the fastest recovery of the fighter jet’s delivery schedule, Gregory Ulmer, Lockheed’s F-35 program manager, said in an interview. He said the alternating work schedule will protect a highly skilled workforce and “allows them to stay employed.”

The workers, members of the International Association of Machinists and Aerospace Workers, will get full pay and benefits for their week off provided that they work 96 or more hours during their two weeks on duty.

Delivery schedules to the U.S. and allied militaries buying the F-35 “will be adjusted accordingly,” but Lockheed anticipates a return to pre-Covid-19 “production levels by late summer or early fall,” Ulmer said.

It’s an example of a projected three-month slowdown in major programs that Ellen Lord, the Pentagon’s under secretary for acquisition, warned of last month.

Lockheed has committed to delivering 141 F-35s to the U.S. and allies by year-end, up from 131 last year. About 41 of the next-generation aircraft have been delivered to date. Ulmer said the Bethesda, Maryland-based company estimates that, as of now, between 18-24 jets won’t be delivered by year’s end, but the company will make up as many is it can once it’s back to pre-Covid production levels.

“If we see improvements we are going to quickly step back to normal production,” he said. The “tapered” production schedule will be reviewed every three weeks to see if it can be changed, Ulmer said.

Lockheed and the union also have agreed to let employees volunteer to be furloughed for 30 days, maintaining their benefits but forgoing pay for that period.

Cumulative Impacts

Ulmer said Lockheed is dealing with the cumulative effect of temporary shutdowns or Covid-19 restrictions from a small number of Lockheed’s 1,900 “tier one” U.S. and international suppliers. He said that has resulted in temporary shortages of some subcomponents for larger assemblies.

He cited Leonardo SpA’s temporary closing in March for a deep cleaning of its F-35 assembly plant in Cameri, Italy. Leonardo also produces F-35 wing components.

Today “they are greater than 90% manned and coming back,” Ulmer said.

Ken Possenriede, Lockheed’s chief financial officer, cautioned last week that the F-35 might miss its delivery target this year due to parts shortages and other disruptions from the outbreak. The risk prompted the company to lower its annual sales guidance by a range of $250 million to $500 million when it released first quarter earnings last month.

“We are likely seeing supplier delays, supplier impact due to COVID, and we are now assessing that and looking at our own production line regarding the viability, the likelihood of delivering 140 aircraft this year,” Possenriede told a Goldman Sachs industrial conference on May 14. “We’re still in the throes of doing that negotiation. But that was the main reason why we took our guidance down for the year in the April call by $375 million. That was all Aeronautics, and it was all F-35.”

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