Donald Trump Pulls the “Twitter” Against Lockheed Martin Stock
Lockheed Martin Corporation (NYSE:LMT) and Donald Trump seemed to be the best of friends. Trump was supposed to be good for defense stocks, right? Yet, Lockheed Martin stock dropped over four percent, but not because it lost a contract. Rather, Trump’s “Twitter” account has pointed its viewfinder against the largest U.S. defense contractor.
Lockheed Martin stock lost plenty of altitude as it was forced to defend its “F-35” from President-elect Trump’s verbal barrage. The company said it would answer all the president’s questions about the F-35. The new stealth fighter jet represents the most expensive military program in the history of the United States.
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As for Trump’s tweet, given Trump’s claim to fame is his ability to score the “best deal,” defense contractors like Lockheed Martin should not have been surprised. Trump wants to please his voters by showing he will be fiscally responsible. This doesn’t mean a Trump administration will be thrifty about defense spending.
Trump first targeted Boeing Co (NYSE:BA) and the projected costs for the next “Air Force One” planes. On Monday, he targeted Lockheed Martin. Another defense contractor—my guess Northrop Grumman Corporation (NYSE:NOC)—will be next. Note that Trump has not criticized the F-35 program itself or its technology. Nor has he targeted the F-35’s usefulness.
Trump has merely targeted the costs and the delays, which is more than normal for a businessman who has made his fortune in construction, dealing with contractors, cost overruns, and delays. The President-elect would not have become a billionaire by letting minor cost details slip. Ultimately, the turbulence from Trump’s tweet against the F-35 will give way to calmer air, and LMT stock should recover.
Controversy between Trump and LMT Is About F-35 Costs and Delays; He Did Not Question Its Need
Jeff Babione, director of the F-35 program responded to Trump’s accusations. He cited the F-35’s “incredible technology.” Babione also said that Lockheed Martin has made constant efforts to reduce both manufacturing and maintenance costs. (Source: “Trump tweet about F-35 aircraft hits Lockheed Martin shares,” CBC, December 12, 2016.)
Trump tweeted that the cost of the F-35 program was “out of control.” He added that “Billions of dollars can and will be saved on military (and other) purchases after January 20th.” (Source: “Twitter post,” Donald J. Trump, December 12, 2016, 5:26 a.m.)
That was certainly one of the most expensive tweets that LMT stock ever had to endure.
The target was Lockheed Martin, but the message is for all military contractors. Lockheed’s cost reductions could bring the cost of each F-35 down to $85.0 million by 2019 or 2020 from the current $110.0 million (that’s what Israel paid for them).
Launched in the early 1990s, the F-35 program has cost the Pentagon an estimated $400.0 billion. At that price, the manufacturer expects to make 2,500 aircraft. But, says the company, when the cost drops to $85.0 million per unit, the F-35 will be cheaper than any other fourth-generation jet in the world.
Lockheed Martin insists that the F-35 is the most modern fighter plane anywhere. Trump fired his “tweet-missile” against the F-35 and its costs, just as two planes left an Italian base near Milan. The planes landed there for a refueling stopover on the way from the manufacturer.
The F-35s were headed to the Israeli Air Force, which took delivery five hours later than expected. The delay was blamed on fog and Italian air traffic regulations. But, noted LMT, the F-35 can depart and land in fog without any problem. (Source: “Arrival of F-35 fighter jets to Israel delayed by heavy fog,” Ynet, December 12, 2016.)
The F-35, a fifth-generation stealth bomber, will equip the U.S. Air Force as well as the Navy and the Marines. The U.S. forces have already deployed the plane. And foreign customers have just started to take delivery.
The F-35 can achieve a speed of Mach 1.6 (about 1,200 mph). It is supposed to be six times more efficient than current air combat and surveillance planes. It can also out-attack rival planes on the ground by a factor of eight, says Lockheed Martin.
But, since its launch in the early 1990s, the program has suffered cost overruns and delays. The F-35 is presented by Israel as one of the answers to the Iranian threat, and something of a sweetener to reduce the Knesset’s opposition to the Iran nuclear deal. Indeed, the F-35s are said to be able to fly undetected by the “S-300” missiles that Russia delivered to Iran.
