F-35 acquisition costs increased $7.4 billion over a year, up 1.9 percent from last year, according to the 2013 Selected Acquisition Report (SAR) submitted to Congress Thursday.
Acquisition costs rose from $391.2 billion in the 2012 SAR to $398.6 billion, according to the Defense Department, while overall lifecycle costs decreased $89.4 billion. Operating and support costs also decreased 8.7 percent, a total drop of $96.8 billion, due primarily to cost data updates including the historical cost escalation, an update to the spare parts unit database, revised labor rates and updated technical inputs to include increased fuel efficiency.
F-35 engine costs increased $4.3 billion from $64.3 billion to $68.6 billion, up 6.7 percent. DoD attributed this to increases for updated exchange rates for the Air Force and Navy (+$1.7 billion), increases due to actual cost realized form recent low-rate initial production (LRIP) contract lots (+$1.7 billion) and increases due to reduced production rates (+$200 million).
F-35 Program Executive Officer Air Force Lt. Gen. Christopher Bogdan told reporters Thursday engine provider Pratt & Whitney was at fault for the increase in engine costs.
“Pratt is not meeting their commitment, it’s as simple as that,” Bogdan said. “They told us years ago that the engine was going to come down at a certain rate in terms of price and they haven’t met it…Not good at all.”
F-35 aircraft costs increased $3.1 billion from $326.9 billion to $330 billion, a rise of 1 percent, due primarily to the incorporation of the latest prime contractor and subcontractor labor rates and exchange rates for the Air Force and Navy (+$5.1 billion). DoD said these increases were partially offset by net decreases for updated cost estimating methodologies, decreases in material costs and adjustments to the learning curve used for recurring production (-$1.9 billion).
F-35 prime contractor Lockheed Martin [LMT] said Thursday in a statement it was “very pleased” with the $15.1 billion reduction in 2012 dollars for the overall cost of the program. In a SAR fact sheet, DoD said F-35 total program costs (acquisition plus operations and support) fell at a rate of two percent, down $15.1 billion.
Bogdan further accused Pratt & Whitney of shifting overhead costs to DoD to make up for a loss in business in other programs, both commercial and military. Bogdan said Pratt & Whitney told him engine costs are tied to economies of scale and when he buys more engines, costs will decrease.
“That’s only part of the answer,” Bogdan said. “The other part of the answer is some of their business base has dried up…What they’re doing is spreading their overhead costs and they’re spreading them right where they can, and I don’t like that. So we’re working with Pratt for them to continue their war on costs so they can get back to the promise that they originally made to us.”
Pratt & Whitney said Thursday in a statement it has a “very aggressive” cost reduction program in place and has invested more than $65 million into “War on Cost” activities, reducing the cost of the F135 engine by more than 40 percent. Company spokesman Matthew Bates said Thursday despite the investment DoD has altered the production requirements several times and the volume has not materialized as planned.
Bates said since the “War on Cost” started in 2009, nearly 500 engines have been cut from the company’s shop load forecast in 2013-2016, a 25 percent reduction in total shop load. Bates added Pratt & Whitney continues to deliver a robust 87 percent cost improvement curve and it expects to continue delivering LRIP over LRIP price reductions despite F135 volume pushout.
Pratt & Whitney is a division of United Technologies Corp. [UTX]. The F-35 is developed by Lockheed Martin with subcontractors Northrop Grumman [NOC] and BAE Systems.