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National Defense > Blog > Posts > Next Battle for F-35: Bring Down Operations Costs
Next Battle for F-35: Bring Down Operations Costs
By Sandra I. Erwin



Pentagon officials have assured Congress that they are keeping t
he cost of manufacturing the F-35 Joint Strike Fighter under control, and their attention is now turning to the program’s next gauntlet: An estimated trillion-dollar bill for maintaining and operating the F-35 fleet over the next five decades.

The eye-popping estimate has raised hackles at the Defense Department and on Capitol Hill since it was disclosed in 2011. It covers the cost of fuel, spare parts, logistics support and repairs.

Alarmed by these projected costs, F-35 program officials are searching for answers. They have asked manufacturer Lockheed Martin to help bring these expenses down.

“The government is encouraging us to look at ways in which we can reduce the life cycle cost of the aircraft,” said Steve O'Bryan, vice president of business development at Lockheed Martin Aeronautics.

“There are lots of opportunities to lower cost,” he said in an interview.

No one should expect any miracles, however. “This is just the beginning,” said O’Bryan. The projected operations and support, or O&S, costs include many variables that are impossible for the manufacturer to control, such as fuel prices and the rate of U.S. inflation, O’Bryan said. The Pentagon’s O&S estimates for the F-35 have ranged from $850 billion to $1.1 trillion over 55 years. “Over 40 percent of that estimate is inflation alone,” he said. The company is targeting areas where it believes it could reduce O&S cost, he said, such as the fuel consumption, contracting methods and reliability of aircraft components. 

Pentagon acquisitions chief Frank Kendall told Bloomberg News last week that he expects O&S cost estimates to come down slightly, but not as much as he would like.

The focus on O&S costs comes at a pivotal time in the F-35, which is the nation’s most expensive military weapon system. The officer who oversees the program, Air Force Lt. Gen. Christopher C. Bogdan, told a congressional panel last month that the aircraft is finally turning a corner following years of massive budget overruns.

“Affordability remains my number-one priority,” he said March 26. Since he took over the program in Dec. 2012, Bogdan has driven a hard bargain with Lockheed Martin, and the pressure appears to be working. In a surprising bit of good news, the Government Accountability Office revealed new pricing estimates for F-35 that show a slight drop in the projected production costs for all 2,457 aircraft in the program to $332.3 billion, which is about 3.3 percent less than last year's figures. Lockheed so far has delivered just over a hundred aircraft and has another 75 in production. The current price per aircraft is about $135 million.

The Pentagon’s latest estimates will be revealed in mid-April with the release of its annual “selected acquisition reports.” All eyes will be on the projected cost of the F-35. The SAR report last year forecast F-35 operations and support cost over 55 years at $1.1 trillion. That estimate has been mostly unchanged for the past three years.

Containing O&S costs will be a priority in 2014, said Bogdan. “We must continue to drive the cost of producing F-35s down, and we must start today to attack the long-term life cycle costs of the F-35 weapon system,” he told the House Armed Services subcommittee on tactical air and land forces.

The GAO’s director of defense procurement, Michael J. Sullivan, cautioned that F-35 sustainment costs threaten its future. “The department's most recent estimates for operating and supporting the F-35 fleet are somewhere between $850 billion and $1 trillion which department officials have deemed unaffordable.” Sullivan credited the Pentagon for making “difficult decisions through the years to put the F-35 on more sound footing, but more risks lie ahead and it will be important how these risks are managed.” The biggest snag is the F-35 software, which is holding back the entire program, Sullivan said. The other is the O&S cost. “The estimate right now is deemed unaffordable.”

To attack this problem, the F-35 program office in October 2013 set up a “cost war room” in Arlington, Va.

Bogdan has asked for a realistic plan on how to lower O&S costs. “Reducing F-35 sustainment costs and beginning the transition to a future global support and posture will be a key focus of 2014,” he told lawmakers in prepared testimony. A team of government and contractor representatives assigned to the cost war room are investigating 48 different ways to reduce expenses. They are also studying options for future repair and maintenance of F-35 aircraft in the United States and abroad.

A much ballyhooed “automatic logistics information system,” or ALIS, was designed to help manage O&S costs, but the software is running behind schedule. ALIS would collect and distribute critical data about aircraft components' performance over their entire life cycle.

Bogdan said the system has been redesigned. “We've fundamentally changed the way we're developing the ALIS system, our logistics information system, and we're starting to see some incremental improvements there.”

O’Bryan explained the ALIS system would provide valuable information on the reliability of components, and help to prevent costly repairs. “That could mean big savings fleet wide,” he said. “Reliability is a big driver.”

Another way to reduce operations costs is to shift pilot training to simulators, O’Bryan said. Moving flying hours to simulators, though, inflates the per-hour cost of flying. “If you fly less, you're absorbing fixed costs over fewer hours,” he said. “That doesn't mean we shouldn't try to move more of the training to simulation.”

Lockheed’s position is that the larger the fleet, the more efficiency it can bring to operations. It is counting on the U.S. military to buy 2,443 aircraft and on non-U.S. purchases of 700 aircraft by 10 countries, including South Korea.

As the F-35’s original manufacturer, Lockheed would have the inside track if the Pentagon ever decides to bring other contractors into the program for maintenance and support work. There are no guarantees, however, that Lockheed will have a monopoly on F-35 maintenance and repairs, said O’Bryan. “The PEO has challenged us to earn the right to be the product support integrator,” he said. “We're earning that right by investing in affordability.” The company has worked on trimming the weight of the aircraft and lowering the cost of spare parts, he said. “Just like in the life cycle of any product, you want to address affordability upfront, where you can maximize the amount of savings.”


Photo Credit: Lockheed Martin

Comments

Re: Next Battle for F-35: Bring Down Operations Costs

Sandra,  Excellent article-two unspoken and peripheral market segments are L-M's Unions and Stockholders. No one ever addresses them.
Mike Janay at 4/7/2014 9:30 AM

Re: Next Battle for F-35: Bring Down Operations Costs

Affordability was supposed to be the cornerstone of this program, but the real cornerstone was pie in the sky marketing, poor estimating and execution, along with unaffordable cost and schedule overruns. 
It also became apparent that the programatic optimism did not stop with acquisition but exteded into the operations and support costs which are much much higher than advertised at the start of the program.
So we are now 13 years into the SDD and now they are thinking about affordability and bringing down O&S costs.  The word "bassackwards" comes to mind.
Weaponhead at 4/11/2014 3:28 PM

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