WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N), under intense pressure from the Pentagon to reduce labor and pension costs, said on Thursday it would hire more temporary workers to maintain production at its Fort Worth, Texas, plant, where a key union has been on strike for eight weeks, mainly over future pension benefits.
Lockheed spokesman Joe Stout said the company had hired almost 300 temporary workers already, and had borrowed about 50 non-union workers from other sites in Texas, Georgia, California and South Carolina for welding and other specific jobs.
He declined to say how many more temporary workers would be hired at the Fort Worth plant where Lockheed builds the F-35 fighter jet, noting that the company’s plan was “to keep adding them as long as the strike continues.”
In addition, he said about 510 members, or about 14 percent, of the striking International Association of Machinists and Aerospace Workers (IAM) had returned to work at the Texas plant and two military bases in California and Maryland.
The strike began on April 23, after a third restructuring of the F-35, the Pentagon’s largest weapons program, which delayed full rate production by six years until 2019 and left uncertain when the military would start using the new stealthy aircraft.
The Government Accountability Office released a report on Thursday which cited continuing concern about the high level of overlap between development, testing and production on the program. It said the first four production contracts had cost overruns of more than $1 billion and retrofits had cost at least $373 million to date, but the bill could rise.
“More design and manufacturing changes are expected as testing continues, bringing risks for more contract overruns and concurrency costs,” the office said in its report.
It also faulted the Pentagon for not analyzing the consequences if it failed to get projected annual acquisition funding needs of more than $12.5 billion through 2037.
Lockheed Chief Executive Bob Stevens and other top officials thanked workers in the company’s aeronautics division in a letter on Wednesday for working long hours and taking on additional responsibilities to keep production running.
They said Lockheed could not back off its plan to end defined pension benefits for future workers, the key issue at stake in the strike, given economic realities.
“As you’ve seen, we’ve already brought on hundreds of temporary workers to supplement the great work you’re doing, and we’re accelerating the hiring of additional temporary workers to keep the business moving forward,” Stevens, President Christopher Kubasik and Larry Lawson, head of the aeronautics division, said in a letter to employees.
Lockheed remains mired in difficult negotiations with the Pentagon for a fifth batch of 32 F-35 fighter planes, talks in which pensions have become a key issue, according to a source familiar with the discussions.
“PRESSURE ON PENSION COSTS”
The two sides remain far apart despite six months of talks, said the source, noting that U.S. defense officials have demanded “substantial” cuts in Lockheed’s labor and pension costs, which account for about a third of the company’s overall costs on the F-35 Joint Strike Fighter program.
“The government is seeking more savings in the labor costs and pensions than anywhere else,” said the source, who was not authorized to speak publicly. “That means the company really doesn’t have any choice in the strike, because the government is putting so much pressure on pension costs.”
Lockheed’s other unions and salaried workers agreed to defined contributions pension programs as early as 2006, but the Fort Worth machinists union has dug in its heels, arguing that future workers will need the defined benefits more than ever, given the overall level of economic uncertainty.
Stout said the temporary workers and about 1,100 salaried workers were working on manufacturing, assembly, flight operations support and maintenance. He said Lockheed had many more employees available for assignment if needed, and was training more workers daily to take on new tasks.
Stout said the company was operating two shifts and working every day at the Fort Worth facility, where about 260 of the 3,300 striking machinists have returned to work.
Nearly all 150 union members have been working at Edwards Air Force Base in California despite the strike, and about 100 of 150 striking workers have crossed the picket line at Naval Air Station Patuxent River in southern Maryland, Stout said.
The union, which is paying workers about $150 in strike checks a week, said no negotiations were scheduled.
“Standing together, we can win,” the union said on a blog posting on the local union’s website, arguing that Lockheed could clearly trim overhead costs elsewhere since it was able to free up 1,700 or more salaried workers to help with production.
“Obviously the work they were doing wasn’t that important, that they can take two months off,” the union said.
Stout said the company was making progress on production, and continued to meet its delivery commitments.
He said the company still believed it could deliver all 30 F-35 fighter jets scheduled for delivery this year, although a reassessment might be needed later if the strike continued.
Reporting By Andrea Shalal-Esa; Editing by Phil Berlowitz and Robert Birsel