Lockheed Martin’s impacted F-35 deliveries show that defense vendors are not immune to COVID-19 crisis

Following the release of Lockheed Martin’s Q1 2020 results and the announcement of potential delays in F-35 deliveries;

Nicolas Jouan, Aerospace and Defense Analyst at GlobalData, a leading data and analytics company, offers his view on the impact of COVID-19 on defense supply chain;

“Lockheed Martin’s Q1 2020 results are to be considered excellent by current market standards. While most companies are plunged in the COVID-19 crisis, Lockheed Martin has increased its Q1 net sales by 9.1% year-on-year, reaching US$15.6bn. The apparent absence of impact of the COVID-19 outbreak on Lockheed’s sales is not altogether a surprise as the company is a pure defense contractor entirely reliant on governmental sales, which are themselves inherently sheltered from the immediate impact of a consumption crisis such as the current one.

“Defense projects and related contracts are financed by congressional budget allocation voted on a yearly basis, and ongoing deliveries have already been agreed with the Department of Defense for the current fiscal year.

“But the impact of COVID-19 can be felt in other ways, and Lockheed Martin had to suffer from disruptions in its supply chain. The scattered model of production and sales of the F-35 program, relying on international partners such as the UK, Japan, Italy or Australia, could be a weakness. The COVID-19 outbreak has already compelled countries to temporarily close assembly lines in Italy and Japan in March, hurting the full-rate production of the airplane which was estimated at 15 per months this year. The situation could still worsen if these same partners end-up reducing their acquisition commitment in 2021 because of reduced budget allocation.”

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