F-35 Joint Strike Fighter: A High Stakes Game of ‘The Price Is Right’
The latest cost estimates, groused SASC Chairman Sen. Carl Levin are “dismaying … disturbing.” The numbers are “truly troubling,” piled on SASC Ranking Republican Sen. John McCain. “No program should expect to be continued with that kind of track record, especially in our current fiscal climate.”
The senators were appalled by revelations in a Pentagon report submitted to Congress in April that the F-35 Joint Strike Fighter will cost a trillion dollars — including development, production and support costs — over the next five decades. They were also fuming about the program being years behind schedule, and about the latest projections for per-unit aircraft costs, which have nearly doubled from $69 million to $133 million. The Pentagon’s top procurement official, Ashton Carter, said that based on the current forecasts, the program is “unaffordable.”
So when the CEO and other top executives from JSF prime contractor Lockheed Martin Corp. met with reporters this week, journalists were expecting company officials to push back. How would they defend against SASC charges that JSF is out of control? How does Lockheed plan to stop the bleeding? Will production have to slow down, as the Government Accountability Office recommended?
CEO Robert J. Stevens refused to join the fray.
Lockheed completely agrees with senators’ concerns, he said at a news conference in Arlington, Va. In fact Lockheed officials said they would not dispute the cost figures cited by the SASC because they have no idea where they came from. “There are a lot of numbers out there,” Stevens said. “I’m not going to try to compare reductions on estimates when I don’t really understand the source of all the estimates.”
The heated hearing and the questions swirling around F-35 come at a time when Lockheed is negotiating the next production lot, known as LRIP 5, or low-rate initial production. Whatever cost data the company has is being kept in executives’ back pockets for now, at least until an agreement is reached on the price the Pentagon will pay for 32 LRIP 5 aircraft. Under the new fixed-price-incentive contract arrangement, once customer and supplier consent to a price, cost overruns are charged against the contractor’s profits. Conversely, the company is rewarded if the aircraft end up costing less than the agreed-upon price.
Carter said the program is unaffordable, but he would not say how much the cost has to come down to make it affordable. That is part of an ongoing “should cost” review, he told lawmakers.
After all these years, nobody yet seems to know how much the Pentagon should pay for these aircraft.
Carter described the "should cost" analysis as a scrutiny of “every aspect of the bill, every aspect of the cost of the airplane, work by prime contractors, subcontractors, suppliers, direct costs and indirect costs, and seeing how they can be driven out over time of the program.”
At the news conference, Lockheed officials cautiously hinted at internal cost estimates that could counter recent assessments. The trillion-dollar figure was based on 2,443 airplanes flown by the U.S. Air Force, Navy, and Marine Corps over a period of 52 years, with more than 50 different basing locations, said Steve O’Bryan, vice president for F-35 customer engagement at Lockheed Martin. He also contended that more than half of the cost analysis was based on “legacy aircraft data” of how much it costs to support and maintain existing fighter jet fleets. Because the F-35 is supposed to require less maintenance and break down less often than the aircraft is it replacing, such as the F-16 and the F/A-18C, the fighter may not require the same size support crews. A reduction in manpower would impact the lifecycle cost, O’Bryan said.
When asked why company officials did not refute the estimate at the congressional hearing, O’Bryan said, “We really need to prove ourselves out. We shouldn’t just say, ‘No, that’s wrong.’”
O’Bryan argued that much of what is in those studies is guesswork. “I can’t fight estimates that go out to 2068, in then-year dollars with the price of fuel. That’s very difficult to do. All I can do is point to the data I have right now, and the analysis we’ve done,” he said. “What we have to do is perform and demonstrate a reliable and affordable airplane. Until we do that, I don’t think it’s helpful for us to just say it’s wrong,” O’Bryan added.
Another wildcard in the program — which has driven up development costs — is the software. The F-35s flying currently have 7 million lines of software code. By the end of the development and demonstration phase, the aircraft will have 9 million lines of code. O’Bryan said the company is investing $100 million in software testing and adding 190 engineers to the software development team. One million lines of that new code in June will be loaded on the “CATBird” platform, a Boeing 737 aircraft outfitted to replicate F-35 sensors and computing systems.
Production continues at Lockheed’s plant in Fort Worth, Texas, in parallel to development and testing. The facility will begin delivering two aircraft per month by this summer, said O’Bryan.
Affordability — whatever that means in today’s Pentagon procurement world — remains the big unknown in the program. F-35 has eight international partners and at least five nations interested in acquiring the aircraft through foreign military sales. “The first jets were more expensive than we thought, but we’re on a steeper learning curve than we thought, so that’s good,” said O’Bryan. “We’re continuing to work in the supply chain to decrease the price,” he said.
Actual manufacturing costs only account for only a very small piece of the puzzle. David Van Buren, principal deputy assistant secretary of the Air Force for acquisition, said that, in the case of LRIP 5, the Fort Worth manufacturing fabrication and assembly labor cost portion is less than 1.5 percent of the overall proposed aircraft price. The “should cost” review, Van Buren told SASC members, will focus on labor, support labor, materials, subcontracted equipment and all elements of overhead costs.
Stevens acknowledged that corporate overhead costs must come down for the company to be able to bring down the prices not just of the F-35 but of every one of its defense programs. Over the past year, Lockheed has shed 600 senior executive positions through voluntary buyouts, said Stevens. “We’ve frozen the salaries of our senior-most executives and we’ve been critically examining every process, every purchase and every transaction that we engage in to try to get as lean, as focused, and as agile as we can possibly be,” he said. “Two years ago we had 146,000 employees. We now have 126,000. And that number may well continue to decline,” Stevens said. “In 2011, we’ll be targeting several hundred million dollars in additional overhead cost reductions.”
Additional reporting by Sandra I. Erwin