(click to view full)
The Battle over the F-35 fighter‘s costs is quickly becoming a strategic issue for Lockheed Martin. The firm is worried that the rising Pentagon cost estimates per fighter will spook both domestic and foreign buyers, right in the crucial period between FY 2010-2015, when it is supposed to move to full-rate production. If that happens, it could create a vicious spiral of slower cost drop-offs, followed by more cutbacks, followed by rising costs and delays. On the other hand, if concerns are allayed, and then the pessimistic estimates turn out to be right, a number of countries and governments will find the future of their air forces hung out to dry, via unaffordable contracts. The problem is, Lockheed Martin and the US government disagree sharply over what the F-35’s cost is. That is why so much is riding on who is eventually right, and on who is perceived to be right.
Bill Sweetman is arguably aviation’s most respected journalist. “JSF – Talking Real Money” helps explain why, as it dissects the 2 colliding viewpoints of the fighter’s future costs. Here’s the core of the debate…
(click to view full)
The Pentagon cites an average F-35A sticker price (Unit Recurring Flyaway cost) of $63 million in 2002 dollars, or about $113 million average cost paid during the program, thanks to expected economic inflation over that multi-decade period. Which, depending on whom one believes these days, could be significantly over or under actual inflation during that period.
Lockheed Martin says it’s more like the 2007 SAR’s figure of $49.5 million in 2002 dollars, and could be as low as $46 million. That’s at least 20% lower, IF the program is not cut, and planned production rates are maintained. The firm says that values for its 2008-2009 low-rate initial production contracts bear them out.
Sweetman explains the difference:
“Overall, CAPE(Capabilities Assessment and Program Evaluation office) estimated that the total F-35 procurement cost would be about $23.6 billion more than the December 2007 SAR estimated. Two elements accounted for the lion’s share of that increase. $9.2 billion was attributed to increases in the cost of building the wing section [emphasis his] – which in JSF terms is the wing plus the complex and densely packed body section to which it is attached – plus other elements such as a commonality update.
$8.6 billion goes to propulsion [emphasis his], which is not reflected in Lockheed Martin contracts. Some of this is influenced by the cost of the lift system for the F-35B: the Navy is on the hook for nearly one-third of the $8.6 billion even though only 330 STOVL aircraft are planned (out of over 2,000 planned American F-35 variants)… And the LRIP contracts with Lockheed Martin are only part of the answer. They don’t include the engine… and none is fixed-price and none has been completed. (The LRIP-1 jets are due to be signed over in September… all cost-plus and fixed-price incentive contracts, one way or another, split the “execution risk” between the contractor and the government, and Lockheed Martin people are not very specific on how this has been done on LRIP 1 through 3 or how it will be done on LRIP-4…”
The extent of Lockheed Martin’s uphill Beltway battle may be illustrated by a quote from a recent USAF article, covering Pentagon Undersecretary of Defense for Acquisition, Technology and Logistics Ashton Carter’s presence at the 2010 Department of Defense Acquisition Insight Conference:
“Despite discipline in keeping F-35 requirements stable, a combination of unforeseen engineering changes and other factors went unacknowledged and virtually unmanaged for two years, resulting in a 30-month delay and $3 billion in additional program costs, according to one estimate. “We should have better situational awareness and better early warning about the status of our programs,” Doctor Carter said… The government must stop the trend of hollowing out DOD’s in-house technical capability and then attempting to compensate by adding burdensome oversight, regulation and documentation requirements, he said.”
Dr. Carter’s point regarding the acquisition workforce is spot-on. With that said, the use of the words “unacknowledged and virtually unmanaged” amount to extremely strong criticisms of both the Pentagon, and the contractor. If it comes down to a choice of whom to believe with respect to cost estimates, it would appear that the current Pentagon leadership will tilt sharply toward figures put forward by people and entities who were not part of that program during the period in question.
Ultimately, however, this is an engineering question. One side will be right, and one side will be wrong. Are their respective stances clear-eyed realism? Wishful thinking? A self-fulfilling prophecy? Time will tell, and each observer must judge for themselves.
Meanwhile, the debate matters.