US withholding $5 million for each F-35 lacking full upgrade

The Pentagon is withholding $5 million from Lockheed Martin Corp. for each F-35 aircraft that doesn’t yet have advanced hardware and software to meet specifications, the Defense Department’s F-35 program office and the company said.

“We have coordinated the terms and conditions with Lockheed Martin,” the program office said in a statement Thursday to Bloomberg News. “Approximately $5 million per aircraft is being withheld and will be released as combat capability is delivered.”

The announcement gives investors, analysts and taxpayers a sense of the cash incentive at stake for the No. 1 defense contractor as it seeks to move beyond a years-long saga of problems involving its top defense program. Neither Lockheed nor the Pentagon revealed how many planes are subject to withholding.

Lockheed has projected delivering 75 to 110 of the aircraft by Dec. 31. Still, the $5 million per plane won’t be released until the fully compliant software is ready, according to the Pentagon.

In a Securities and Exchange Commission filing Tuesday, Lockheed said Pentagon is withholding a portion of final aircraft delivery payments until the full upgraded hardware and software combat capability, known as TR-3, is qualified and delivered. But the contractor didn’t specify how much is at stake for each of the fighter jets. Until now, neither had the Pentagon.

Lockheed said in its filing that it “is making significant investments in development labs and digital infrastructure.”

The Defense Department decided in July that deliveries of the fighter jets could resume after a yearlong halt, with improvements to be made later. That allows pilots to begin training on the F-35s. Eighteen of the planes had been delivered as of Aug. 19.