LMT Lockheed Martin Corp

By Doug Cameron 

The U.S. Defense Department said it may split a $14 billion order for the next two batches of F-35 combat jets after failing to reach agreement on a single deal with lead contractor Lockheed Martin Corp.

Lockheed has been in talks with the Pentagon for months about a combined deal for 160 jets covering two years of production, and the two sides had hoped to reach agreement in early 2016.

But negotiations over price and other issues have dragged on longer than expected as the Pentagon tries to cut the cost of the F-35A model used by the U.S. Air Force to around $80 million by the end of the decade.

The F-35 program office said it may now award a deal first on the smaller ninth batch of jets, which involves more than 63 planes, rather than combine it with a 10th batch.

Negotiating F-35 deals in bigger batches was intended to cut the Pentagon's price and help Lockheed and its partners negotiate better deals with their suppliers, but the process is proving tougher than expected.

The F-35 accounts for about 20% of Lockheed's revenue and is an important contributor to sales and earnings at others including Northrop Grumman Corp. and BAE Systems PLC, as well as dozens of smaller contractors.

Analysts are closely watching pricing on the next two batches of jets as the F-35 currently generates lower margins than Lockheed's other planes.

The Pentagon paid Lockheed almost $1 billion in August to cover supplier costs on the ninth batch and is in talks about another payment to help fund the 10th, according to the program office.

Lockheed declined to comment on talks with the Pentagon but said in its updated guidance released with earnings Tuesday that its forecasts for 2016 and 2017 hinge on when it secures the next two F-35 deals.

Third-quarter profit roundly beat analysts' expectations and the company boosted 2016 sales guidance and forecast revenue would rise another 7% next year to almost $50 billion.

Lockheed reported a quarterly profit of $2.4 billion compared with $865 million a year earlier as per-share earnings rose to $7.93 from $2.77 share. Revenue climbed 15% to $11.55 billion. For the full year, it expects earnings of about $12.10 a share on revenue of $46.5 billion. It previously forecast $11.15 to $11.45 a share on $45 billion to $46.2 billion in sales.

Anne Steele contributed to this article

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

October 25, 2016 11:49 ET (15:49 GMT)

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