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National Defense > Blog > Posts > F-35 New Year’s Wish: Efficient Production
F-35 New Year’s Wish: Efficient Production
By Sandra I. Erwin



Lockheed Martin is building four F-35 fighters per month, even though its manufacturing plant has the capacity to produce 17.

With the program under an intense spotlight — in the wake of President-elect Trump’s disparaging tweetstorm this week about F-35 costs being “out of control” — the company’s best hope is that once production accelerates, the price tag for the aircraft will stabilize at about $85 million a piece. The current unit price is about $111 million.

“The rate we’re building is insufficient,” said Robert Weiss, executive vice president of Lockheed Martin Aeronautics.

It is economics 101 that a low production rate keeps prices high, but for the F-35, the implications are even more far reaching. All the current buyers of the aircraft — the U.S. Air Force, Marine Corps and Navy, as well as non-U.S. customers — are modernizing their fighter fleets, and the longer it takes for them to buy the current generation of the F-35, the longer they will wait, and the more they will have to pay, for new upgrades and improvements that are planned once the program is in full-rate production, Weiss said at a Foreign Policy Initiative conference in Washington, D.C.

Besides basic economics, it is important to ramp up production so buyers can move past the growing pains of introducing a new fleet and can start planning for the future, he said, “We should buy the mature systems we have. I would begin there. The next step is to modernize these airplanes,” Weiss said. “We need to continue to invest in technology for future fighters. We should buy the one that’s available to us, and put it on an aggressive modernization path,” he said. “The budget is not there to do that now.”

The fear, he said, is that the F-35 could become a “bill payer for everything else.”

By virtue of this being the largest single Pentagon weapons acquisition in history, such a scenario is not unreasonable.

The entire U.S. program of 2,457 is projected to cost $340 billion in 2017 dollars. Foreign sales of the F-35 also are central to keeping prices down and establishing industrial partnerships with key U.S. allies.

The Pentagon in its fiscal year 2017 budget requested 43 F-35As, 16 F-35Bs and four F-35Cs. Congress might add funding for more aircraft when it takes up the defense appropriations bill in April, before temporary funding authority runs out. An additional 53 aircraft would be produced for foreign buyers.

But Lockheed is looking for a more significant financial commitment from the Pentagon, including a three-year “block buy” of up to 450 aircraft starting in 2018, which would give the company breathing room to negotiate prices with subcontractors.

Forty F-35s were produced in 2015 and the expectation is that 160 a year will be built by 2020. The block buy is what Lockheed is banking on to keep the program on track, said company spokesman Michael Rein.

Pentagon officials have hinted that they are ready to move forward with production commitments but it’s not clear how much of a damper Trump’s bashing may have put on the negotiations process. “We are all in wait-and-see mode,” said Rein.

Lockheed recently received a $1.3 billion advance payment on a potential $7.2 billion deal for Lot 10 low-rate initial production aircraft. After a major dispute between the Pentagon and Lockheed over Lot 9 prices, this latest payment is seen as a positive sign, noted defense industry analyst Roman Schweizer of Cowen Washington Research. This could boost annual production to 90 aircraft.

It makes sense for the company to lock in a deal before the Trump administration takes office, Schweizer wrote in a research note. “We see little risk that a Trump Pentagon would derail or curtail the program but admit that this is an unknown.”

In response to Trump’s tweet, Lockheed’s F-35 Executive Vice President Jeff Babione said company leaders “welcome the opportunity to address any questions the president-elect has about the program. …
We project the price of the aircraft will be $85 million in the 2019 -2020 timeframe.”

Industry analyst Byron Callan, of Capital Alpha Partners, sought to appease jittery investors. “Until the costs and risks of conceivable alternatives are known, compared to current F-35 plans, we don’t believe investors should panic over the program’s prospects based on a single Trump tweet.”

Beyond its cost and schedule challenges, the F-35 faces continuing criticism from the Pentagon’s top weapons tester J. Michael Gilmore. He accused the program office of providing “misleading” responses to questions about F-35 tests from Senate Armed Services Committee Chairman Sen. John McCain, Bloomberg News reported this month. Both Gilmore and McCain have called out the program over the years for performance issues.

Also creating headwinds for the program is an emerging debate about how the Pentagon should go about investing in next-generation technology. Big-ticket hardware like the F-35 brings luster to a nation’s armed forces but also drains significant resources, analysts have argued. The concern is that the military becomes overly dependent on expensive weapons systems at the expense of lower-cost, perhaps more effective alternatives, suggested Ben FitzGerald, senior fellow at the Center for a New American Security.

The Pentagon needs a “fundamentally different approach” to defeating enemies in the battlefield, he said at the FPI forum. “I’m not criticizing F-35, but that may not be the right approach. It costs $40,000 per hour to fly, and we’ll be rolling that out against people in $4,000 vehicles. That’s a self-imposed cost-imposing strategy,” he said. “We can’t just put out expensive platforms that assume efficiencies over 50 year timelines. We need to address what’s happening today.”

Photo: One of Israel's two F-35 joint strike fighters upon arrival at Nevatim Air Base (Lockheed Martin)

Comments

Re: F-35 New Year’s Wish: Efficient Production

Bogdan's "ramp-up" has become a ramp-down.
The limited production program of F-35 prototypes running concurrently with lengthening development is lagging. The 2016 production plan of 53 useless aircraft at the Lockheed Ft. Worth plant will be far short of the target due to quality control problems and the challenge of producing many variants on the same line. The three F-35 variants with 300,000 parts each have little in common, and the "delta" versions for the few foreign buyers are different from the US models. As a result only thirty planes were produced in the first three quarters of 2016, with production not expected to be back on schedule until the end of 2017 according to Lockheed's Hewson.
Unit acquisition costs are climbing due to poor contracting (no fixed price, many sweetheart cost contracts) and lagging production. Three years ago Bogdan said that by 2019 the F-35 program will deliver “fifth-generation aircraft at fourth-generation prices" but unit acquisition costs (based on awarded contracts) for the current lot nine prototypes hover around $200 million per plane, compared to less than $100 million for legacy planes.
Even using Bogdan's rosy unit cost estimates (not actual costs), the current F-35 Program Acquisition Unit Cost (PAUC) of $133M is 60% higher than the 2001 baseline of $83M. (both in current dollars) The current F-35 Average Procurement Unit Cost (APUC) is $107M which is also 60% higher than the baseline $67M. Both of these exceed the Nunn-McCurdy threshold, being 50 percent or more over the original program objective.
Don Bacon at 12/17/2016 10:14 AM

Re: F-35 New Year’s Wish: Efficient Production

The simplistic view that just building more will lower cost has been proven to be false many times in the aerospace sector.   Each time a boom in the airliner industry happens, companies rapidly increase production rates.   This has led to quality issues that has actually increased the cost per aircraft.   The reasons apply to both the prime contractor and the supply base.   Only so many people are currently qualified to make this stuff.  As production rates increase more unqualified staff are rapidly trained to become qualified.   The result is that things get missed, people make mistakes, and you go through a whole learning curve all over again.  It would not surprise me at all if the costs INCREASE if we significantly increase F-35 orders.

The second point to make is that the F-35 is still in testing, hasn't had an OPEVAL.   We called this concurrency "Acquisition Malpractice" but here we are trying to accelerate the malpractice!    Any increase in buy rate further exacerbates thee problem.

Weaponhead at 12/18/2016 10:43 AM

Re: F-35 New Year’s Wish: Efficient Production

These are not "F-35s" being manufactured at the Lockheed plant in Ft Worth, they are useless F-35 prototypes which will all have to be modified to an approved design someday. Most of them are parked in USAF "training squadrons." The F-35 Milestone C production decision is still years away. So why produce more now? Why not spend procurement dollars on something that works?
Don Bacon at 12/19/2016 11:10 AM

Re: F-35 New Year’s Wish: Efficient Production

Whatever your view on the status and failings of the F-35 program, its a no brainer that the aircraft has to be bought in economical numbers right now.  The aircraft has reached a workable level of maturity, there is no prospect of any comparable alternative, and the clock is ticking on the existing legacy fleet.

The future is with the LRS(B), and whether or not the wisdom exists to increase numbers at the expense of mid and later 2020's F-35 production and bringing a second B-XX in to compete with the B-21.  Produced quickly starting with a basic modular white airframe, the long range aircraft could be built in blocks as low intensity bomb trucks, stand off cruise and ballistic missile platforms, strategic air defense arsenal planes, and penetrating bombers.  Blocks of these aircraft could be leapfrog redeveloped from low intensity to penetrating, etc, etc., in a manner not unlike the existing bomber force has been but with modular redevelopment an intrinsic part of the design.  Separating the packages from the air frame also presents a means of controlling cost, since smaller projects and programs would avoid the unstoppable colossus of programs like the F-35 which meet almost none of its original objectives.

An additional force of 75-150 more LRHA's are possible at the expense of 300-500 F-35's, and could have lower operating costs over the existing bomber force of B-52's, B-1's, and B-2's.  Given the rapid evolution of aerial warfare, it might also be prudent to expedite the MQ-25 and any other projected high and low mixes of navy and parallel air force programs, including the notional sixth generation (fighter) aircraft.
John Orange at 12/22/2016 2:42 PM

Re: F-35 New Year’s Wish: Efficient Production

@JO
"Its a no brainer that the aircraft has to be bought in economical numbers right now.  The aircraft has reached a workable level of maturity"
Actually that's not true.
--The 2015 F-35 test report reported the shortcomings of the F-35B which the Marine Corps had declared combat capable.  The Block 2B version of the F-35 Joint Strike Fighter is not capable of unsupported combat against any serious threat, it "would need to avoid threat engagement… in an opposed combat scenario, and would require augmentation by other friendly forces.”
-- In testimony to Congress, GAO's ongoing work indicates that although the F-35 total program acquisition costs have decreased since 2014, the program continues to face significant affordability challenges. DOD plans to begin increasing production and expects to spend more than $14 billion annually for nearly a decade on procurement of F-35 aircraft.
In testimony to Congress,  the test czar reported "Although measurements of aircraft reliability, maintainability, and availability have shown some improvement over the last two years, sustainment relies heavily on contractor support, intense supply support to arrange the flow of spare parts, and workarounds by maintenance and operational personnel that will not be acceptable in combat. "
-- On the F-35 engine, GAO reported: While Pratt & Whitney has implemented a number of design changes that have resulted in significant reliability improvements, the F-35A and F-35B engines are still at about 55 percent and 63 percent, respectively, of where the program expected them to be at this point.
-- recent headline: "F-35 Development Could See 7-Month Slip, $530M Increase" Senator McCain, in a memo to the Pentagon: "I am extremely disappointed to learn of yet another delay in the completion of the System Development and Demonstration (SDD) phase of the F-35 Joint Strike Program with an associated cost overrun that may be upwards of $1 billion." McCain asked SecDef Carter to respond to 10 questions, including when the system development and demonstration phase would be completed, what priorities won't be funded in fiscal 2018 to make up for this cost overrun and if any capabilities will slip to the modernization program instead of initial acquisition.
--etc.
Don Bacon at 12/22/2016 3:27 PM

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