Editor's Note: Below is an update from Hedgeye Senior Defense Advisor LtGen Emerson "Emo" Gardner USMC Ret.
Lockheed Martin is coming face to face with one of the inevitable bumps in the road enroute to full rate production of the F35, scheduled in FY 2019. The Air Force announced the grounding of 15 of the 108 F-35A that have already been delivered because of crumbling insulation for cooling tubes that pass through the aircraft's fuel tanks. Of greater import for investors is that 42 of the ~125 aircraft in the production cycle are also impacted. The Marines' F-35Bs and the Navy's F-35Cs and remaining older F-35As are not affected.
Official estimates of repair times have not yet been announced, but given the location of the lines, considerable manhours will be required. This will clearly have an adverse impact on Lockheed's ability to meet its goal of completing the delivery of 53 jets to its US and foreign customers this calendar year. This will in turn adversely impact LMT's planned revenue for the year. Expect this to be a major topic in CEO Marilyn Hewson's quarterly revenue call next month.
