A potentially $6.6 billion three-year sustainment contract award on Sept. 13 to Lockheed Martin [LMT] for its F-35 fighter is a stepping stone to a possible performance-based logistics (PBL) contract revision next year, if the company meets cost per flight hour (CPFH), parts availability and full mission capable (FMC) goals.

While past F-35 sustainment contracts evaluated Lockheed Martin on the aircraft’s mission capable rates, the new sustainment contract is to judge the company on FMC rates and the on-time availability of parts to ensure FMC rates improve. Overall, the Government Accountability Office has said that the F-35’s FMC rate is 54 percent–18 points below the goal.

The F-35 JPO has said in the past that FMC rates depend on sufficient investments by the U.S. Air Force, U.S. Navy and U.S. Marine Corps in spare parts and flying hours.

The sustainment contract, as other military contracts, apparently contains company-proprietary information and is thus not released by the government. The specific FMC, parts availability, and CPFH goals in the contract for fiscal 2021, 2022, and 2023 were thus unavailable, and the F-35 JPO did not release those yearly goals on Sept. 14.

“Under this contract, the cost per flight hour (CPFH) for the global fleet improves by 8% from $36.1K in 2020 to $33.4K in 2023, in constant year 2012 dollars,” the F-35 Joint Program Office said on Sept. 14. “Specifically, this represents a $3.6K reduction in CPFH for the USAF A-model from $33.6K in 2020 to $30.0K in 2023. The contract also drives improvements to performance through a refined performance incentive structure focused on year-over-year improvements in full mission capable (FMC) rates and supply metrics.”

While the $30,000 CPFH goal for the Air Force F-35A is a goal, factors could intervene that could make that goal more difficult to achieve, such as a change in requirements, rising fuel costs, or the establishment of a program for an additional or alternate engine beyond the existing Pratt & Whitney [RTX] F135 engine.

Lockheed Martin has said that it has invested $500 million in cost reduction initiatives for its 40 percent of the F-35 sustainment program. Pratt & Whitney and the government make up the remaining 60 percent of the sustainment program.

The $2 billion obligated for Lockheed Martin at the time of the Sept. 13 award is split among $822 million in Air Force fiscal year 2021 operation and maintenance (O&M) funds; $382 million in fiscal 2021 Marine Corps O&M funds; $177 million in fiscal 2021 Navy O&M funds; $2.3 million in fiscal 2021 Air Force aircraft procurement funds; $1.2 million in fiscal 2021 Navy aircraft procurement funds; $217 million in Foreign Military Sales funds; and $412 million in non-DoD participant funds. Of this total amount, $1.38 billion will expire at the end of this fiscal year.

The F-35 JPO wants the $2 billion to energize the Lockheed Martin supplier chain to improve the ordering of spare parts, parts availability, and F-35 FMC rates. If Lockheed Martin is able to demonstrate the latter, the company is to be eligible for a PBL contract next year.

Air Force Gen. Mark Kelly, the head of Air Combat Command (ACC), said last February that he is not confident that the F-35 will reach a program “25 by 25” goal of $25,000 CPFH by 2025 (Defense Daily, Feb. 26).

In the past two years, Pentagon officials, including those from the Cost Assessment and Program Evaluation (CAPE) office, have voiced similar skepticism about reaching the $25,000 goal. In the summer of 2020, the F-35 JPO said that the CPFH overall was $35,000, down from $44,000 in 2019.

Lockheed Martin CEO James Taiclet told defense analysts during a second quarter earnings call in July that the government, Lockheed Martin, and Pratt & Whitney have to be “all in” to meet the “25 by 25” goal.

“We’re only about 40 percent of the total cost,” Taiclet said of Lockheed Martin’s portion of the sustainment program. “So 60 percent is propulsion and military government cost. If we don’t have an all-in strategy together to address this, we’re not going to hit the goals…I do agree with the team at [Lockheed Martin] Aeronautics that there is a way to get this cost per flying hour on an A model of $25,000 an hour, but it’s got to be an all-in approach.”

Dan Grazier,  the Jack Shanahan military fellow at the Center for Defense Information and a U.S. Marine Corps veteran, wrote in a Sept. 14 email that the $25,000 CPFH goal for the F-35A “is something I don’t think we will ever see.”

“The F-35 is designed to be an expensive aircraft because the original development contract incentivized the program to be so,” Grazier wrote. “Lockheed Martin controls the data rights to the program and faces no competition for these sustainment contracts and so has little motivation other than public pressure to control costs.”