The recent agreement between the Pentagon and
for the latest lot of
includes a 6% price reduction compared to the previous buy. And while the two parties contend that the agreement indicates the price of a single F-35A will drop to $80 million by 2020, past cost estimates by the aircraft’s manufacturer and program office have proved overly optimistic.
Following the announcement of the handshake agreement for the 11th lot of F-35s for 141 jets, Pentagon acquisition executive Ellen Lord told Aviation Week in a statement, “With each production lot, the F-35 Unit Recurring Flyaway costs continue to come down across the board.”
Congressional sources point out that the 6% cost reduction for Lot 11 is considered average, given the number of aircraft.
Lot 11 is the final production buy before the Joint Program Office (JPO) and Lockheed Martin enter a block-buy contract for F-35 international partners and Foreign Military Sales (FMS) customers for production Lots 12, 13 and 14. U.S. participation is constrained to economic order quantity (EOQ) procurement in fiscal 2019 for Lot 13 and fiscal 2020 for Lot 14 production contracts because Capitol Hill would not sign off. Congress is waiting for the aircraft to complete operational testing before authorizing the Pentagon to enter the block buy.
The JPO estimates the total U.S. and international savings from the F-35 EOQ is $1.2 billion compared to a traditional contracting construct. However, the Pentagon’s Cost Assessment and Program Evaluation (CAPE) office, in a report viewed by Aviation Week, notes the savings will be roughly $595 million, or about half of the figure projected by the JPO.
The disparity between the two Pentagon offices is sounding alarm bells in Congress. “While these savings are still significant, as certified by the Undersecretary of Defense (Acquisition and Sustainment), the Committee is dismayed by the inaccuracy of the initial JPO estimates,” reads the Senate Appropriations Committee’s mark up of the fiscal 2019 spending bill.
CAPE’s analysis is based on site visits and discussions with the prime contractor and key subvendors that occurred between December 2017 and February 2018.
“The CAPE forecast is equivalent to a $1.3 million reduction per aircraft (or 1.5%) over the planned procurement of 442 aircraft, with a total contract value of approximately $40 billion in fiscal 2018-20,” the report reads.
The assessment concludes that anticipated U.S. savings would be about $300 million compared to the JPO’s estimate of $638 million. Lockheed Martin aims to lower the F-35A price to $80 million per airframe by 2020, while CAPE’s analysis of the cost reduction is that the $80 million goal does not seem feasible within that time frame. The previous head of the F-35 program for the company, Jeff Babione, says either a block buy or multiyear contract is paramount to achieve the $80 million target.
During the Farnborough Airshow, the new head of the F-35 program for Lockheed Martin, Greg Ulmer, said the company is in discussions with the JPO about the necessity for a third phase of the affordability initiative focused on Joint Strike Fighter procurement and sustainment.
The effort, known as Blueprint for Affordability (BFA), debuted in 2014. Lockheed Martin and F-35 subcontractors
and
invested $164 million in internal funding for the first phase of the initiative to improve the fighter’s manufacturing process, tooling and assembly. The inaugural phase of the BFA is complete and yielded about $4 billion in cost-savings over the life of the program, Ulmer says.
“We have many hundreds of projects associated with [BFA 2 to date], and we’re already forecasting greater than $2 billion of additional savings for the program,” he says.
The company will continue to analyze potential cost-reduction initiatives but is uncertain if there will be a third phase of BFA.
“As we’ve been producing the airplanes from [low-rate initial-production] LRIP 1 to LRIP 10 today, it’s actually about a 60% reduction. You’re going to see this trend continue when you see the final numbers on the LRIP 11 final contract,” Ulmer says.
The program is in discussion with Belgium, Finland and Germany to purchase F-35s, and Lockheed Martin just received a request for proposals from Switzerland to participate in its fighter competition.
There is speculation that both the UK and Italy may reduce their F-35 purchases, and Congress may block Turkey from purchasing the fighters. Those moves would increase the per-unit price for the U.S., international partners and FMS customers.
Now that the UK’s F-35s are based in-country, though, Ulmer is hopeful there will be advocacy there for the aircraft going forward.
