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The U.S. Air Force displayed its F-35A at Farnborough as Lockheed Martin resumed delivering the fighters.
Deliveries of the Lockheed Martin F-35 flowed again in early July after an extended pause stemming from delays to highly anticipated software upgrades, but all is not well between the government and the company on the financial side.
The fighter’s first deliveries in about eight months freed up withheld payments under a new delivery plan. However, the U.S. government is still holding back funding because it is not receiving the capabilities for which it is paying. Additionally, Lockheed Martin says it expects to exceed its contracted funding this year if negotiations to reach an agreement on future production lots fail.
“We will not pay for that which we have not yet received,” Andrew Hunter, the U.S. Air Force’s assistant secretary for acquisition, told reporters at the Royal International Air Tattoo (RIAT) on July 20. “There are still withholds. Since not everything we contracted for has been delivered, payment is also not complete.”
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Lockheed had delivered 10 F-35s to the U.S. military as of July 23, with 75-110 aircraft expected by year-end. Company officials could not immediately lay out the order of delivery—when international customers would start to receive aircraft.
The U.S. Air Force has had to move aircraft between its bases creatively to form new operating units and to provide training. Hunter said the extended delay had cascading effects, making the time right to start receiving aircraft even though they would not be completely operational as expected.
Customers in Europe also have repeatedly raised concerns about the F-35 delays. Denmark in June said it would pull its six fighters from the training base at Luke AFB, Arizona, and bring them back to Danish soil to meet training needs at home. Poland’s Air Chief Maj. Gen. Ireneusz Nowak said in May that his service would also accept aircraft with Technology Refresh 3 (TR-3) hardware but older software to get pilot training started, adding that he wants the full TR-3 package ready for the F-35s’ arrival in 2026.
Jeffrey Harrigian, formerly head of U.S. Air Forces in Europe and now Lockheed vice president of strategic campaigns, said the upgrade is necessary to unlock the fighter’s weapons and electronic warfare capabilities.
“I can tell you they’re all interested in getting those capabilities coming forward,” he said at the Farnborough International Airshow. “It’ll be helpful for all of us.”
Under a plan announced this year by the F-35 Joint Program Office (JPO), the U.S. government would begin accepting aircraft without the full complement of TR-3 software and hardware modifications needed for a Block 4 upgrade that will unlock key capabilities. The bulk of deliveries for the rest of the year will be in this “truncated” TR-3 setup, Lockheed and the JPO say, with some TR-2 aircraft also being handed over. The aircraft would not be fully capable until mid-2025, Lockheed says.
“Waiting and waiting and waiting to finalize those capabilities we weren’t quite ready to take yet is actually holding up progress on some of the later capabilities of Block 4 that we also really need,” Hunter said at RIAT.
It was not immediately clear how much the government was still withholding, as Lockheed Martin officials said on a July 23 earnings call that was still under negotiation. The company is holding its free cash flow expectation in the range of $6-6.3 billion to absorb the impacts of those final F-35 delivery payments.
“Restarting delivery was an important first step, really, toward delivering the fully combat-capable aircraft,” Lockheed Martin Chief Financial Officer Jay Malave said during the call. “The aircraft withhold, this final delivery payment, is a timing item . . . and we’re working with the customer to finalize the terms of those final delivery payments. . . . As far as the revenue, I really wouldn’t expect much of an incremental benefit in terms of revenue. We continue to build at a 156 rate.”
The company would not disclose how many aircraft have been built and are awaiting delivery. Production is running higher this year than last, Malave noted on the call.
Air Force Secretary Frank Kendall said at RIAT that the service had cut back the number of F-35s in its fiscal 2025 budget because of Block 4 delays, although that could change as upgrades continue.
“There’s a correlation on how many airplanes we’re buying and progress made on Block 4,” Kendall said. “There are financial incentives, and they are being used—I don’t think Lockheed is trying not to deliver. There’s a lot of motivation that’s inherent in the program.”
Lockheed is on contract for production of Lots 15-17, with negotiations underway on the upcoming Lots 18-19. In a quarterly SEC filing, the company warned that without additional contractual direction from the U.S. government it would exceed its authorization and funding on existing advance contracts in the third quarter of this year, leading to additional cost overruns.
“If this materializes, it could negatively impact our results of operations, cash flows and financial condition,” the filing states. “We continue to engage with the U.S. government to reach a mutually agreeable solution.”
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