Lockheed Martin Corp (LMT.N) led defence stocks lower on Friday after U.S. President-elect Donald Trump's latest Twitter salvo over the cost of the company's F-35 fighter jet, in which he said he had asked rival Boeing Co (BA.N) to "price-out" an older aircraft as an alternative.Lockheed shares were down about 1.3 percent in afternoon trade, nearing their lowest levels since the Nov. 8 election and serving as the biggest drag on a basket of defence-related stocks (ITA.P). Boeing's stock was near the unchanged mark.Trump posted his Twitter message late on Thursday, a day after he met with the chief executives of both aerospace companies."Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!" Trump said.The practical implications of Trump's actions were unclear, however, given that the F-18 is an older generation aircraft that lacks the stealth capabilities of the F-35. One U.S. official said it was impossible to tell what Trump meant by his Tweet, given the importance of stealth technology as a way to counter advanced defences of near-peer states, like Russia or China."Somebody needs to ask Donald Trump how he's going to be able to confront China without aircraft capable of penetrating anti-access and area denial systems, including air defences," the official said.Most defence analysts do not consider the two jets as comparable aircraft.
"Impractical if not irrational," Richard Safran, a defence analyst at Buckingham Research, said by email. "First, the F/A-18 is a carrier-based naval fighter. Certainly it could not meet the U.S. Marine Corps need for vertical lift. It would not be suitable for the Air Force either - the extra weight of a carrier fighter makes it less than ideal for the Air Force.""Unless the rules of physics have changed, you cannot make a non-stealthy two-engined, carrier-based aircraft from the 1980s into a single-engine, multi-role stealthy fighter from the 2000s," Vertical Research Partners analysts wrote in a note early on Friday.Still, Trump's dissatisfaction with the program, which has been dogged by problems while costs have escalated to an estimated $379 billion, is a clear risk for Lockheed. The F-35 program is a critical sales generator for the company, accounting for 20 percent of last year's total revenue of $46.1 billion.
Lockheed Martin on Friday declined to comment on Trump's comments. The Pentagon did not respond to a request for comment on Thursday.Boeing spokesman Todd Blecher said on Thursday in an email that the company was committed to providing the capability and affordability to meet national security needs.On Wednesday, Trump met the CEOs of Lockheed and Boeing at his resort in Palm Beach, Florida. Boeing CEO Dennis Muilenburg told reporters there that he had guaranteed costs would not get out of control for a replacement to Air Force One, the presidential plane, another project Trump calls too expensive. Lockheed CEO Marillyn Hewson did not speak to reporters but said in a statement that the meeting was "productive." Trump told reporters he wanted to cut the F-35 program's costs.
Trump's jockeying for leverage via his Twitter account is likely to be a hurdle for all U.S. defence contractors, Roman Schweizer, aerospace and defence analyst at Cowen & Co, wrote in a client note on Thursday.Trump unleashed his tirade about the hefty cost for U.S. aircraft earlier this month, first lashing out at Boeing over the cost of replacement Air Force One presidential planes and days later at Lockheed over the F-35.Since Trump's first tweet about Air Force One on Dec. 6, Lockheed shares have slumped around 6.4 percent, costing its shareholders collectively about $5 billion in lost market value. "We have no idea how this plays out but believe 'Twitter risk' for defence companies could be a significant issue over the next four years," Cowen's Schweizer wrote. "This is Lockheed Martin's time in the barrel." (Reporting by Phil Stewart in Washington, Joe White in Detroit, Jeffrey Dastin in Los Angeles, and Andrea Shalal in Berlin; Writing by Dan Burns; Editing by Meredith Mazzilli and Chizu Nomiyama)
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Updated Date: Dec 24, 2016 02:15:27 IST