During Donald Trump’s presidential campaign, he championed building up the U.S. defense industry. But in the past week, Trump has criticized the building of a new Air Force One, and is now ripping into Lockheed Martin over the cost of F-35 fighter jets. Trump says costs are ridiculous, and must be cut. But those cuts could mean jobs, and conflict directly with his promise to create more of those in the U.S. Is Trump putting the defense industry on notice? And how much damage can Trump do to the defense industry with Twitter?
What Does Trump’s Tweets For Lockheed Have In Store For The Defense Industry?
Donald Trump isn’t even president, but is already wielding the power of the oval office. However, his most powerful weapon seems to be Twitter. The President-Elect has never been shy about saying exactly what’s on his mind. That immediate, no-filter, honest communication is the major reason in Trump’s election win. And that was with 4 million Twitter followers. Now, Trump has 17 million followers on Twitter, and his typed out 140-character thoughts have a major impact on the world around him.
Earlier this week, Trump tweeted about the high cost of F35 jets produced by Lockheed Martin. And he’s right. The F-35 has been described as the most expensive weapon system in history in the past, with prices at one point escalating to $400 million per jet. However, Lockheed has invested heavily in streamlining operations, and combined with mass quantity orders by the U.S. government, the F-35 Model A fighter jet now costs around $102 million per jet. Lockheed Martin representatives expect the jets to cost about $86 million within the next 2 years. And while costs are going down, Trump is looking to save tax dollars by calling out defense spending. There’s just a few problems with that.
The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.
— Donald J. Trump (@realDonaldTrump) December 12, 2016
F-35 jets are used not only by the U.S. Air Force, but also the Marine Corps. And outside of the U.S. military, Israel, Britain, Australia,Norway, Italy, and the Netherlands all utilize F-35 jets. Even Japan now uses F-35s, having received its very first F-35 last week. So while the jet may come under fire from critics, cutting or ending a program in use by countries around the world presents a huge logistics problem.
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In addition, a president cannot cancel a program after funds have already been allocated. So Trump looks to be stuck with Lockheed’s F-35s. However, he can change the quantity purchased to a degree. Whether the President-Elect is aware of this or not, he has made a statement about defense spending. And defense contracts come up for renewal regularly. So while he can’t cancel this particular order, he is shedding a light on defense spending and lighting a fire under defense contractors to lower costs in a big way.
But the main reason Trump won’t actually cancel the F-35 project is because of the jobs the jets provide. The program involves contractors in nearly every U.S. state, as well as partner nations around the globe. If he was to actually make massive cuts to the program, there would be a large outcry from factory workers (who he champions) losing jobs. In Connecticut, Pratt & Whitney, maker of the F-35 engine, employ 2,000 workers solely for the F-35 program. Other states house other suppliers who employ thousands of factory workers to construct the jets. Extreme cuts there could be felt throughout the economy.
It’s scary to see how powerful Trump can be through Twitter. With one tweet, Trump managed to singlehandedly lower Lockheed Martin’s share price by 2.5 percent. And that was just by saying costs are outrageous. What happens if the CEO of a consumer goods product looks at the new president wrong and Trump declares a boycott on said company?
Check this video how Trump affects Lockheed Martin’s market value with CBS News.
That may not be an issue just yet, but Trump looks to have his sights set on the defense industry at the moment – which means that investors should be wary of defense companies such as Lockheed Martin (LMT), General Dynamics (GD), and Raytheon Company (RTN).
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