Trump tweet hits Lockheed Martin's F-35 fighter jet costs

WASHINGTON Donald Trump on Monday criticized Lockheed Martin’s F-35 fighter jet program as too expensive, the latest attack by the U.S. President-elect on large defense contractors.

Lockheed shares dropped 5.1 percent and shares of several other defense contractors also tumbled.

“The F-35 program and cost is out of control,” Trump said on Twitter, echoing campaign promises to cut waste in federal spending. “Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

Last week, he also used Twitter to target Boeing Co (BA.N) for its “out of control” costs on a new fleet of Air Force One planes, urging the federal government to “Cancel order!”

Lockheed Martin’s F-35 program leader, Jeff Babione, responded by saying the company understands concerns about affordability and has invested millions of dollars to reduce the jet’s price.

Babione said Lockheed’s goal was to reduce the price of the F-35 by 70 percent from its original estimates. “We project it to be about 85 million dollars in the 2019 or 2020 time frame,” he told reporters in Israel.

A week before Trump won the Nov. 8 presidential election, the U.S. Defense Department and Lockheed Martin (LMT.N) concluded negotiations on their ninth contract for 90 F-35 fighter jets, the Pentagon said. Lockheed won the contract, valued at up to $7.18 billion, in late November and has received an interim payment.

The Pentagon is paying about $102 million for each of the conventional takeoff A-model jets being built for the U.S. Air Force, Israel and many other countries, according to sources familiar with the program. That marks savings of over 50 percent from the initial jets ordered, reflecting larger quantities and the fact that many technical issues have been ironed out.

The F-35 program has been dogged by problems since its inception, with the Pentagon’s chief arms buyer once describing as “acquisition malpractice” the decision of previous officials to start producing the jets before their development had been completed. That decision led to a series of costly retrofits on early production jets.

The Pentagon’s chief weapons tester has continued to criticize the program, but the jets are now in operational use by the U.S. Marine Corps and Air Force, and the jets are being flown by six countries: Australia, Britain, Norway, Italy, the Netherlands and Israel. Japan took delivery of its first jet last week, according to a spokesman for the program.

Still, cost overruns have made the F-35 a target for criticism. With an estimated price tag of $400 billion, the F-35 program has been described as the most expensive weapon system in history.

Lockheed and its key partners, Northrop Grumman Corp (NOC.N), United Technologies Corp unit Pratt & Whitney (UTX.N) and BAE Systems (BAES.L), are developing and building three variants of the F-35s for the U.S. military and 10 allies including Britain, Australia, Norway, Denmark, the Netherlands, Italy, Turkey, Israel, Japan and South Korea.

After Trump’s tweet, shares of Lockheed Martin were down 5.1 percent. Shares of General Dynamics (GD.N), Northrop Grumman Boeing, BAE and Raytheon were lower, while United Technologies shares were flat.

United Technologies recently came under fire from the President-elect over a plan to ship 2,100 Carrier air conditioning jobs to Mexico from Indiana. The company agreed to keep about 800 of the manufacturing jobs in Indiana and retain another 300 headquarters jobs, in return for state tax incentives.

The attacks on Boeing and Lockheed Martin raise concerns that the incoming Trump administration will threaten defense contractors’ profit margins.

“His emerging habit of using Twitter as a bully pulpit could become a threat to controversial high-profile programs,” Cowen analysts wrote last week after Trump criticized the cost of Boeing’s Air Force One replacement program. “Even if Trump only launches a bombastic Twitter shout-out, this more aggressive approach to contractor relations could impact the stocks.”

Earlier this month, the Pentagon’s chief arms buyer said he was hopeful that Lockheed F-35 block buy will proceed.

(Reporting by Andrea Shalal, Alwyn Scott, Doina Chiacu and Susan Heavey; Editing by Bill Trott and Nick Zieminski)