Lockheed Martin Co. (LMT) - Get Report shares traded lower Monday after the U.S. Department of Defense said it had reached a deal to cut the price of the planemaker's F-35A fighter jet to under $80 million each.
The "handshake agreement", which is expected to be finalized in August, amends an earlier deal from September 2018 that had Lockheed Martin selling its F-35A for just under $90 million. Under Secretary of Defense Ellen Lord told the Reuters news agency that the new agreement would ultimately lead to a three-year deal that would see Lockheed Martin delivering 478 fighter jets worth $34 billion to the U.S. and various allies. The F-35 is Lockheed Martin's biggest planemaking program, and comprised 27% of it s$45 billion in consolidated net sales last year.
Lockheed Martin shares were marked 0.68% lower in Monday afternoon trading following the Defense Department statement, to change hands at $352.89 each, a move that still leaves the stock with a healthy year-to-date gain of around 35%.
The Pentagon's ability to wrench better pricing terms from a key military supplier underscores one of the most pertinent criticisms of the blockbuster $120 merger proposal between United Technologies and Raytheon Corp.
President Donald Trump told CNBC's Squawk Box program that was a "a little concerned" about the proposed tie-up, given the implications it would have on competition in the aerospace and defense sector.
"I want to see that we don't hurt our competition," Trump said. " I hope (the deal) can happen. But I don't want to see where we have one less person that can compete for an order. I don't want to see that. It's no good."
Raytheon shares were marked 1% higher at $187.92 each Monday, after changing hands in pre-market dealing at $196 each, following the President's view that he was "a little concerned" the tie-up. United Technologies shares slumped 2.22% to $129.22 each but are still on pace for a year-to-date advance of around 24%.
"In September 2018, we reached an $11.5 billion agreement with the U.S. Department of Defense to build 141 more F-35s for the Low Rate Initial Production (LRIP) Lot 11," Lockheed Martin said in its most recent annual report. "The Lot 11 agreement will help reduce the cost of an F-35 by more than five percent over the previous contract and represents an overall drop in price per jet of more than 60 percent when compared to the initial production contract."
"In November, we won an additional $22.7 billion block buy contract to produce over 250 more F-35 aircraft for LRIP Lots 12, 13, and 14," the company said. "With these growing economies of scale, we will continue to make the aircraft increasingly affordable for all our customers."
Trump's 2020 budget plan, submitted to Congress earlier this year, earmarked nearly 96% of the proposed $750 billion in national defense spending for the Pentagon, 4.7% increase from the previous year.