Without context or explanation, President Donald Trump on Monday claims to have negotiated a deal with Lockheed Martin [LMT] to shave $600 million from the F-35 Joint Strike Fighter program.
Negotiations with Lockheed have trimmed $600 million from the F35 fighter jet price tag, the president told pool reporters on Monday. “I think that was a great achievement,” he said, according to a pool report. “I appreciate Lockheed Martin for being so responsive.”
Aviation and defense analysts cannot make heads or tails of the figure, except to assume that Trump is taking credit for expected cost reduction from increased production rates, which has been baked into the program since at least 2010.
Trump has assailed Lockheed and the F-35 program on social media as being out of control and over-budget. The comments resulted in meetings with Lockheed Chief Executive Marillyn Hewson. Trump claims he wrangled a better deal on the F-35 during those meetings than the government had previously secured.
“Trimmed from what is the real question,” said Todd Harrison, director of defense budget analysis at the Center for Strategic and International Studies. “If he’s talking about the total cost of the program, that’s insignificant.”
The total estimated cost of the F-35 program is $3.7 trillion, which means that cutting a half-billion dollars from the program cost is “just noise,” Harrison said. The figure would be more significant if Trump is referring to slashing $600 million from the expected cost of the tenth lot of aircraft that is currently under negotiation.
The company already holds an undefinitized contract for Lot 10 with a value not to exceed $8 billion. The government has already paid out about $2.1 billion–$1.2 billion for progress completed and the remainder for advanced procurement of materials. The government has the authority to force a per-aircraft price tag on Lockheed by unilaterally finalizing that contract, as it did with Lot 9.
Lockheed would not comment on ongoing contract negotiations, but issued a statement on behalf of its CEO Marillyn Hewson. The company and the Defense Department’s F-35 Joint Program Office (JPO) have several lines of effort underway to draw the unit cost of an F-35A down to around $80 million, comparable to a fourth-generation fighter it will replace.
“We appreciate President Trump’s comments this morning on the positive progress we’ve made on the F-35 program,” Lockheed said. “We share his commitment to delivering this critical capability for our men and women in uniform at the lowest possible cost to taxpayers.”
The lot price of the aircraft has fallen 58 percent from LRIP 1. The consistent reduction, which is an inherent element of acquisition programs and was designed into the F-35, is due to mainly to increased orders and economies of scale achieved through boosts in production rate.
Low Rate Initial Production Lot 9 came in at $6.1 billion for 57 aircraft, a 3.7 percent reduction from the previous LRIP 8 contract signed in December 2014, according to the JPO. Lot 10, which includes 90 aircraft, likely will continue the downward trend in aircraft unit cost, but will almost certainly be more expensive than Lot 9 because of the volume of the buy.
The Lot 9 contract was for 57 airplanes at a total $6.1 billion. The average unit cost of the F-35A dropped from $108 million in LRIP Lot 8 to $102 million in Lot 9. The F-35B likewise dropped from $134 million apiece in Lot 8 to $131 million in Lot 9.Because the Navy bought half as many F-35Cs in Lot 9 as in Lot 8, the price for that variant rose from $129 million each for eight jets to $132 million per jet for four.
“I fully anticipate that when we do settle LRIP 10, you will see all three variants – the A, B and the C – come down in price significantly,” JPO Chief Lt. Gen Christopher Bogdan told reporters in December.
It is unclear if Lockheed and the Trump team have reached an agreement independent of the Defense Department and JPO officials. Requests for comment from a JPO representative were not returned.
It appears Trump is claiming credit for baked-in unit cost reductions that have been in the works for months if not years, said aerospace industry analyst Richard Aboulafia. The most likely source of the $600 million number is taking the expected average price of an F-35A from lot 10, subtracting that from the unit cost in the previouslot and then multiplying that out by the remaining 90 jets in the deal, he said.
Bogdan said the per-jet price likely would fall by six to seven percent in LRIP 10, which translates to about $6.1 million for an F-35 A. Multiplied out over 90 planes in LRIP 10, works out to $549 million. The math works out similarly for the other models.
“That will probably give you more than $600 million,” Aboulafia told Defense Daily. “Until there is any kind of documentation, you can assume he saw a number he liked and is sharing it as his own.”