F-35 'Affordable' at $90 Million per Aircraft
"My number-one concern is affordability," said Air Force Lt. Gen. Christopher C. Bogdan, program executive officer of the Joint Strike Fighter. He said prime contractor Lockheed Martin Corp. and engine manufacturer Pratt & Whitney have a five- to six-year window to bring costs down.
A $90 million price tag would be acceptable to the Pentagon and to JSF international partners, Bogdan said March 12 at the Credit Suisse/McAleese defense programs conference in Washington, D.C.
Bogdan has made headlines in recent weeks when he reprimanded Lockheed and Pratt for putting profits above performance. He told an audience of Wall Street analysts and industry executives at the Credit Suisse forum that both companies only "recently" stepped up efforts to tackle rising JSF costs, and said he is now fairly confident that they are moving in the right direction.
The last batch of F-35s the Pentagon bought — lot 5 low-rate initial production — ran about $4.2 billion for 30 aircraft. Bogdan said lot 5 was 4 percent less expensive than lot 4, and he would like to see that trend continue into future orders.
The current price of the Air Force version of JSF, the F-35A, is $119 million. "By 2019 or 2020, I expect unit cost, including the engines, to be $90 million," he said. "That number is in the sweet spot where our partners want it to be. That's the spot where it would be realistic to buy 3,000 airplanes. ... At $90 million it starts to fit within the budget."
Any delays in the program could sabotage cost-cutting efforts, he cautioned. One of the JSF international partners, Turkey, saw the price of its 36 aircraft in lot 7 rise by $1 million apiece as a result of postponing the purchase of two airplanes from the order.
The most immediate hurdle is to complete development by the 2017 deadline. Bogdan took over the F-35 last year after a turbulent three years during which the program was teetering on the edge. Former defense secretary Robert Gates overhauled the management of JSF in 2009, and gave the program office five extra years and $13 billion in additional funding to finish development. The way JSF was conceived, development, testing and low-rate production all take place concurrently. When the program began in 2001, it was assumed that all three variants would be at least 80 percent common. As it turned out, there is only 25 to 30 percent commonality among them.
Bogdan said JSF is about 90 percent into its development, but the last 10 percent is "the hardest." Most of the trouble areas involve the Navy’s carrier-based F-35C and the Marine Corps’ vertical-takeoff and landing F-35B.
Another huge risk looming for the program is the projected cost of maintaining and operating the aircraft. Operations and support, or O&S, account for 70 to 80 percent of the expenses incurred by a military weapon system over its lifetime.
JSF production of nearly 3,000 aircraft is estimated to cost $400 billion, whereas O&S could reach $1.1 trillion over 50 years, according to Pentagon studies. "What keeps me up at night are O&S costs," Bogdan said. He said the $1.1 trillion estimate is probably overblown, but O&S will, indeed, create a significant financial burden on the users. The U.S. Air Force is the largest buyer, with about 1,700 aircraft projected. The Marine Corps and the Navy are expected to buy 480. Foreign allies would purchase about 600. Bogdan worries that, even if the services can afford to buy the aircraft, the O&S expenditures could dampen their enthusiasm for F-35. "If we don't start doing things today to bring down O&S now, there will be a point when the services will see this aircraft as unaffordable."
Bogdan believes that industry competition will help drive down O&S. The JSF program office plans to open up work such as logistics support, operation of training centers and supply chain management to competitive bidding, he said.
Throughout his presentation, Bogdan repeatedly hammered the point that the F-35’s eight international partners — the United Kingdom, Canada, Australia, Italy, Turkey, Norway, Denmark and the Netherlands — are losing patience and becoming increasingly alarmed by the trends in the program.
“The cost is up by tens of billions,” Bogdan said. “Our partners are starting to put really big dollars into this program.” By the time F-35 reaches lot 8 low-rate production, more than half of the aircraft will be for non-U.S. customers. “They need to know where their money is going,” he said.
Adding insult to injury, the JSF program office classified all documents as “U.S. only,” which upset partner nations. Even if they are all buying the same aircraft, each country has its own air-worthiness qualification processes and other administrative procedures that require they have access to the aircraft’s technical data. JSF officials are working to re-classify the documentation, Bogdan said. “These airplanes are important to them [our partners], politically.”
Pressure to keep allies happy might be one reason why the U.S. Navy will not be allowed to dump the F-35C. It has been known for years that some Navy leaders would prefer to continue to buy the F/A-18 Super Hornet, and not have to bother with the expense and trouble of having to bring a new type of aircraft into the inventory.
Chief of Naval Operations Adm. Jonathan Greenert insisted that the Navy is fully on board.
“We need the F-35C,” he said at the Credit Suisse conference. “It has to be integrated into the air wing.” He said the Navy has not yet decided how many it will buy, however. And he recognized that the Navy ultimately has no choice but to buy the F-35C. “If we bought no C's, it would be very detrimental to the overall program” and to international partners, he said.
The latest setback for JSF was the release of a report by the Pentagon’s director of test and evaluation, J. Michael Gilmore, which assailed the survivability of the F-35A. "Aft visibility will get the pilot gunned [down] every time,” said the report, which was first obtained by the Project on Government Oversight.
The document was seized by critics as proof that the F-35 is a white elephant and that the Pentagon should cut its losses. “While the F-35B and C are even more expensive and lower in performance than the Air Force's A model, this [report] demonstrates that the A model is also flawed beyond redemption,” said POGO adviser Winslow Wheeler.
Bogdan was dismissive of Gilmore’s findings and characterized them as inaccurate. “We have yet to fly an air-to-air engagement,” he said. “We are still doing basic training and testing. … To assess whether the aircraft would be gunned down is premature.”
He acknowledged that there are some technical glitches that still have to be fixed, such as engine blade cracks, the Navy version’s carrier deck hook and software issues. These problems have “known solutions,” he said. “None are rocket science.”
That said, even relatively small setbacks get magnified as JSF customers become increasingly frustrated, Bogdan said. “The enterprise loses patience with me when they have waited 12 years and they are told they have to wait two more,” he said. “We have a perception problem.”
More problems could still surface, he said, as the program has only achieved one-third of the required testing. “There is a long way to go in terms of discovery.”
The good news for Bogdan is that the Pentagon is prepared to fight for JSF, and do whatever is necessary to save the program.
“Despite sequestration, we still have a budget that is adequate to support F-35,” said Frank Kendall, undersecretary of defense for acquisitions, technology and logistics.
Also speaking at Credit Suisse, Kendall said he is optimistic that, once production ramps up, prices will drop.
But there is no going back, he said. “We are not going to start over.” There is still much work ahead, he added, “but there is nothing in this program that is going to derail it.”
Photo Credit: Air Force