Lockheed Martin (NYSE:LMT)
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2 Months : From May 2019 to Jul 2019
By Doug Cameron in Chicago and Ben Kesling in New York
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 8, 2019).
The Pentagon put Turkey on notice that it will cut off Turkish military pilots from training and halt any Turkish purchases of the F-35 fighter jet, defense officials said Friday, exerting new pressure in a widening rift between the two allies.
Acting Defense Secretary Pat Shanahan told his Turkish counterpart in a memo released Friday that if Ankara makes good on plans to purchase a Russian anti-aircraft system, the U.S. would take steps to discontinue Turkey's participation in the development and use of the plane.
The F-35 is by far the world's largest weapons program. Maker Lockheed Martin Corp. forecasts demand for at least 4,500 of the radar-evading jets over the course of the program, which analysts estimate could cost $400 billion.
The letter to Turkish officials increases pressure on the country to cut ties with Russia on a major defense initiative to reverse the U.S. decision to end a partnership providing one of the world's most-advanced fighter jets to the longtime North Atlantic Treaty Organization ally.
Turkey has been training with Russia and plans to purchase and field Moscow's S-400 missile system, an advanced surface-to-air missile developed to shoot down planes like the F-35 that is seen by NATO forces as a key Russian threat.
"While we seek to maintain our valued relationship, Turkey will not receive the F-35 if Turkey takes delivery of the S-400," Mr. Shanahan said in a letter sent Thursday to the Turkish defense minister which was released publicly on Friday.
The Turkish Embassy to the U.S. didn't respond to a request for comment.
The dispute over the S-400 is one of several issues straining U.S.-Turkey ties. The two countries have been negotiating the possible creation of a safe zone in Syria along Turkey's border. And under pressure from the U.S., Turkey has reluctantly cut off oil deals with Iran.
Mr. Shanahan said Turkey's involvement in the F-35 program will be frozen by July 31 unless Ankara ends its efforts to buy and field the Russian system. Mr. Shanahan also sent his Turkish counterpart, Defense Minister Hulusi Akar, a detailed timeline of how the program would unwind, a stark threat that included a reminder that nothing has been finalized.
"You still have the option to change course on the S-400," he said.
Mr. Shanahan laid out the various knock-on effects that would come from fielding the Russian system.
"In addition to threatening the security of platforms like the F-35, Turkey's procurement of the S-400 will hinder your nation's ability to enhance or maintain cooperation with the United States and within NATO, lead to Turkish strategic and economic over-dependence on Russia, and undermine Turkey's very capable defense industry and ambitious economic development goals," he said.
Lockheed Martin oversees a global supply chain and analysts estimate there is as much as $3 million in Turkish content on each plane. That would have to be replaced, potentially inflating the price of the plane just as Lockheed Martin and its partners are trying to bring the price of the basic model down below $80 million.
Turkey is one of the largest F-35 export customers, with an order for 100 jets, third behind only the U.K. and Japan. It is one of eight country partners in the F-35, joining the program in 2002, before years of design and production problems delayed its entry into service by five years and added billions of dollars in cost.
Lockheed Martin, which derives around 30% of its sales from the F-35, has played down the impact of Turkey's ejection from the program.
Turkey has received four of the jets so far and is due to secure another eight annually over the next several years. The defense giant said those purchases can be replaced with potential new customers such as Singapore and Poland, as well as through expanded orders from countries including Japan.
"It will be backfilled," said Lockheed Martin Chief Executive Marillyn Hewson at an investor conference last week. "In fact, a lot of countries say: 'We'll take their slot.'"
The company expects to deliver 131 jets this year, rising to 160 by 2023. It didn't immediately respond to a request for comment.
Local suppliers such as Turkish Aerospace Industries produce major parts for the plane, including a joint venture with Northrop Grumman Corp. to make the center fuselage. The Pentagon said it is developing alternative suppliers, but these can take time to certify and could interrupt or raise the cost of producing future jets.
Turkey has also been chosen to provide maintenance and repair services for itself and U.S. allies flying the jets, especially for the engines made by the Pratt & Whitney unit of United Technologies Corp.
Mr. Shanahan's actions aren't occurring in a vacuum. The Senate, which is working on the annual defense policy bill, the National Defense Authorization Act, included bipartisan-supported language to end the F-35 relationship if Turkey takes delivery of the S-400.
"The language essentially says in no uncertain terms that there won't be F-35s sent to Turkish territory if they buy the S-400," a Senate staffer said. "And they will be required to certify that they won't do so in the future." another staffer said.
While the House hasn't released final language on their authorization bill, similar terms are expected, according to people familiar with the matter.
The U.S. and other NATO allies want Turkey to instead buy the Patriot radar system made by Raytheon Co.
Write to Doug Cameron at email@example.com and Ben Kesling at firstname.lastname@example.org
(END) Dow Jones Newswires
June 08, 2019 02:47 ET (06:47 GMT)
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