Trump talks costs with defence contractors

Mr Trump shaking hands with admirals and generals from the Pentagon following meetings at his Mar-a-Lago resort in Florida. The Pentagon is said to have so far budgeted US$3.2 billion for research and development, military construction and acquisitio
Mr Trump shaking hands with admirals and generals from the Pentagon following meetings at his Mar-a-Lago resort in Florida. The Pentagon is said to have so far budgeted US$3.2 billion for research and development, military construction and acquisition of Boeing's planes through fiscal 2021.PHOTO: AGENCE FRANCE-PRESSE

He meets Boeing, Lockheed chiefs after slamming Air Force One, F-35 fighter project

WASHINGTON • The two largest US defence contractors said they would seek to control their costs after President-elect Donald Trump summoned them and a bevy of top Pentagon officials to his Mar-a-Lago resort in Florida to discuss military spending.

"We're trying to get costs down, costs," Mr Trump on Wednesday told reporters in brief remarks outside the resort after the officers departed. "Primarily the F-35. That programme is very, very expensive."

Mr Trump has employed his Twitter account and its nearly 18 million followers as a weapon against defence contractors, using it to criticise the expense of Boeing's planned update of Air Force One and Lockheed Martin's US$379 billion (S$550 billion) F-35 Joint Strike Fighter, the most expensive US weapon system ever.

Boeing chief executive officer Dennis Muilenburg said he told Mr Trump the plane maker can build a new version of the presidential aircraft for less than US$4 billion.

"We're going to get it done for less than that, and we're committed to working together to make sure that happens," Mr Muilenburg told reporters as he left the Florida resort. The US$4 billion price tag for the plane programme is a number Mr Trump used in a tweet and well exceeds the Pentagon's estimated cost.

 

Mr Trump's Twitter outbursts towards the two contractors may be an attempt to harmonise two competing objectives: higher spending on the military and "reform and discipline", says Mr Richard Aboulafia, a defence analyst with Teal Group.

Lockheed CEO Marillyn Hewson did not announce any new commitments to Mr Trump, while signalling the company has been making progress in lowering costs.

"I appreciated the opportunity to discuss the importance of the F-35 programme and the progress we've made in bringing the costs down," she said in a statement after her meeting.

"The F-35 is a critical programme to our national security and I conveyed our continued commitment to delivering an affordable aircraft to our US military and our allies."

Boeing shares ended 0.7 per cent higher at US$157.48 on Wednesday in New York, while Lockheed shares slipped 0.5 per cent to US$252.52.

Defence companies stand to benefit from a resurgence in military spending promised by Mr Trump and already under way in western Europe and Asia as global tensions rise. In fact, it could be the best environment for investing in defence stocks in a decade, Mr Ron Epstein, a defence analyst with Bank of America, said in a Dec 7 presentation.

Mr Trump's Twitter outbursts towards the two contractors may be an attempt to harmonise two competing objectives: higher spending on the military and "reform and discipline", said Mr Richard Aboulafia, a defence analyst with Teal Group, in a report this month.

"Those goals are tough to reconcile."

Mr Muilenburg said he gave Mr Trump his "personal commitment on behalf of the Boeing Company".

The Chicago-based manufacturer will build the new 747 jets and outfit them to the Pentagon's specifications, which include secure communications and anti-missile defences. Boeing is just beginning work on the systems that will go into the new aircraft and has not yet been awarded a contract for construction of the planes.

"We're looking to cut a tremendous amount of money off the price," Mr Trump told reporters.

The Pentagon has so far budgeted US$3.2 billion for research and development, military construction and acquisition of two of the planes through fiscal 2021, said Mr Kevin Brancato, the lead government contracts analyst for Bloomberg Government.

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A version of this article appeared in the print edition of The Straits Times on December 23, 2016, with the headline 'Trump talks costs with defence contractors'. Print Edition | Subscribe