Potential Chinese Espionage? Lockheed Martin (LMT) Uses Chinese Manufacturers For U.S.-Built Stealth F-35 Jet

The U.S. government has waived laws banning Chinese components being fitted in their Lockheed Martin Corporation (NYSE:LMT)-built F-35 fighter jets in order to keep the $392 billion program on track during 2012 and 2013, according to a report released by Reuters on Friday.

According to the report, Pentagon documents showed that chief U.S. arms buyer Frank Kendall had allowed two F-35 suppliers, Northrup Grumman (NYSE:NOC) and Honeywell International (NYSE:HON) to use landing gears, magnets and other hardware supplied from China. Had the waivers not been issued, both companies would have violated federal law and the program could have been delayed.

Concerned U.S. lawmakers noted in separate documents that American manufacturers do make similar magnets, but according to the acquired Reuters report, it would have cost $10.8 million and 25,000 man-hours to have removed the $2-a-piece, Chinese-made magnets and replace them with the alternative American-made ones.

The Government Accountability Office is leading an investigation into the issue after U.S. lawmakers objected that American companies were being shut out of the specialty metals market, and that a U.S. military jet was being produced by a potential enemy.

The F-35, the costliest arms program in American history, will provide aircraft for the United States and eight other countries that contributed to its development: Norway, Turkey, Britain, Denmark, the Netherlands, Canada, Italy and Australia.

With the program already years behind schedule and more than 70 percent over the initial cost estimate, Kendall granted the waivers because officials were concerned that further delays would drive up the costs further and scare off foreign buyers.

The GAO report will be delivered in March 2014.