The Pentagon has agreed with Lockheed Martin Corp. on milestones the company can reach by the end of the year to earn some of a potential $500 million payment withheld for F-35 jets lacking necessary hardware and software upgrades, according to the U.S. program manager.

That agreement also includes a $350 million investment by Lockheed into the Pentagon’s F-35 software development labs and testing facilities, the program manager, Lt. Gen. Michael Schmidt said in an interview.

Lockheed expects it will deliver by Dec. 31 between 75 and 110 of the upgraded F-35s, including both new aircraft and backlogged jets, the company has said. Lockheed delivered 46 jets as of Sept. 30, according to the Defense Contract Management Agency.

The Pentagon in August said it was withholding about $5 million for each F-35 that didn’t yet have the advanced upgrade, known as TR3.

“We have set up various milestones for the release of that money and it is possible they can hit some of them” by year-end, Schmidt said. “It will be incremental,” and it’s unlikely his office will announce when Lockheed has met any interim goals, he added.

The $350 million Lockheed investment to improve the Pentagon’s software development infrastructure “was a criteria I insisted on because we have not invested enough in that aspect,” Schmidt said. “We have an itemized, detailed plan” and Lockheed’s payment “helps us kick start” that effort.

Lockheed said the $350 million will be invested over the next five years.

The Defense Department decided in July that jet deliveries could resume, following a yearlong halt, even though the full hardware and software upgrades weren’t complete.

Schmidt declined to provide a forecast when the full upgrades will be done. “We are trying to provide a combat capability by next year,” he said, adding there “a couple of capabilities that need to be fully matured but the progress has been incredible.”

©2024 Bloomberg L.P.