Pentagon will withhold nearly 10 per cent of the cost of new F-35 fighter jets while it refines TR-3 software - Lockheed Martin to miss out on more than $400 million by year's end

The US Department of Defence will pay part of the payments for the new fifth-generation F-35 Lightning II fighter jets with a delay. The Pentagon intends to withhold 10 per cent of the cost of the planes.

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Technology Refresh 3 (TR-3) will increase processing power by 37 times and memory by 20 times over the fifth-generation fighter's current capabilities. However, Lockheed Martin has encountered problems with the performance of the software. Because of this, the Pentagon has halted deliveries of the F-35 TR-3 starting this month.

Moreover, the US Department of Defence will withhold 10% of the cost of the fifth-generation fighters until Lockheed Martin demonstrates that the software is working properly. This will result in more than $400 million in delayed payments by the end of the year.

The contractor receives 90% of the cost of each aircraft during the assembly phases for work performed. The other 10% is dependent on signed documents that prove the fighter jets' requirements are met.

But that's not Lockheed Martin's only problem. The value of the contract signed in 2018 has almost doubled from $712 million, leaving the US company with no profit after the F-35 Lightning II upgrade is completed.

Deliveries of the first four F-35 TR-3 aircraft were scheduled for July 2023, but they will go into storage. By the end of the year, 52 fighter jets will go into storage due to the end of deliveries.

The estimated price tag for the Lightning II is $70-75 million. The F-35 programme office has accepted a risk of $8 million for each undelivered aircraft. This brings the deferred payments to about $416 million by the end of 2023.

Source: Bloomberg