The Devil is in the detail – Lockheed lets slip losses on two classified programmes and hints at continuing commitment to NGAD
January 30, 2025
The company’s net 2024 earnings of US $5.3 billion, included a quoted US $2.0 billion (US $1.5 billion, after-tax) of losses for classified programmes, with US $1.7 billion (US $1.3 billion, after-tax) of these losses recorded in the fourth quarter. Lockheed said that the losses included US $1.4 billion on a classified programme in its missiles and fire control (MFC) portfolio (US $1.3 billion in the fourth quarter), with a US $555 million overrun (US $410 million in the fourth quarter) on a programme in its aeronautics division.
Missiles and Fire Control
Lockheed said that its MFC business segment had an existing classified contract, which includes a cost-reimbursable base contract for the initial phase of the programme and with multiple fixed-price options for additional phases, with Lockheed responsible for paying costs above a certain threshold. The company previously disclosed that options may be exercised over the next several years and if performed expected that they would each be at a loss.
During the first quarter of 2024, the company concluded it was probable that the first option would be exercised and would result in a loss of approximately $100 million. During the fourth quarter of 2024, the company again assessed the likelihood that additional options may be exercised and now believe it is probable that all options will be exercised based on performance to date, future requirements of the programme, discussions with the customer and suppliers, and anticipated customer funding, among other factors, resulting in the recognition of additional losses of approximately $1.3 billion.
When Lockheed first disclosed the hit to the MFC programme in April, CEO Jim Taiclet characterized it as a long-running franchise that will deliver a strong return on investment after going through a period of teething pains, while Chief Financial Officer Jay Malave said that the effort was expected to become profitable on an annual basis around the 2028 timeframe. Some have speculated that the programme could be the AIM-260 Joint Advanced Tactical Missile (JATM), an American beyond-visual-range air-to-air missile (BVRAAM) known to be under development by Lockheed Martin.
Aeronautics
The loss-making classified programme in the company’s Aeronautics business segment is described as having an existing fixed-price incentive fee contract that involves highly complex design and systems integration, with a base contract for the initial phase of the programme and multiple options for additional phases. Much like the MFC programme referred to above!
Lockheed says that it continues to monitor the technical requirements and its performance, the remaining work and any future changes in scope or schedule, and estimated costs to complete the program, and believes that it may incur additional losses in future periods if further performance issues, increases in scope, or cost growth occur.
As a result of performance trends experienced in the fourth quarter 2024 and in contemplation of near-term programme milestones, Lockheed Martin performed a comprehensive review of the programme requirements, technical complexities, schedule, and risks.
Based on that review, the company has identified higher-than-projected costs in the engineering and integration activities that are necessary to achieve those forthcoming milestones and identified losses across the programme phases of $410 million in the fourth quarter of 2024. As of 31 December 2024, losses for the year were approximately $555 million, including the fourth quarter loss.
Lockheed Martin says that it is “drilling down on some of the challenges faced by the classified aeronautics changes,” and will implement a continuous monitoring process to track the programme’s technical milestones, and will add technical resources and experts to the team in areas where there is elevated risk. Lockheed Martin will also add new automated testing procedures to make it quicker to find and fix issues.
Jesus ‘Jay’ Malave, the chief financial officer (CFO) for the Lockheed Martin Corporation opined that: “All those things taken together, give us confidence that we have significantly derisked this program and significantly reduced the risk of future charges on this.”
The identity of the programme was not given, and there has been speculation that it could be linked with the company’s work on Collaborative Combat Aircraft for that programme’s Increment Two, or to the NGAD programme itself.
Next Generation Air Dominance
During the earnings call, Lockheed CEO Jim Taiclet said that: “Lockheed Martin is committed to developing and delivering the best military capabilities in the world, better than any potential adversary can hope to have. One of our most critical investments in 2024 was in ensuring continued air superiority for the United States and its allies. We are fully committed to developing a combined air power solution set that integrates new 6th generation with current 5th generation and 4th generation aircraft using wingman drones, AI, advanced sensors in space and in the air, and 5G-level, cyber-hardened data links.”
It is hard to see how this could be referring to anything other than the originally planned NGAD system of systems, including the embattled manned sixth generation manned fighter at its heart.
