By Marina Malenic
The Defense Department is just weeks from completing negotiations on the price of the next 32 F-35 Joint Strike Fighters it will buy from prime contractor Lockheed Martin [LMT], the company’s CEO said yesterday.
Robert Stevens said he is ready to sign a fixed-price contract with the government for the fourth production lot of the jets two years ahead of schedule.
“We are doing that because of the confidence we have in the program,” he said during a breakfast with defense reporters.
The company is currently working under a cost-plus development contract, which means that the government absorbs any overage.
The projected cost of the F-35, expected to replace the majority of the Pentagon’s aging fighter aircraft, has reached $112.4 million per airplane–approximately 81 percent over the 2002 baseline, Defense Department officials have told Congress (Defense Daily, June 3). The F-35 program’s cost growth and schedule delays are the result of a major wing redesign, higher than expected labor costs and delivery delays from components suppliers, according to both the Pentagon’s cost-estimation division and the Government Accountability Office.
The Pentagon now estimates the total cost for the program at $382 billion–65 percent higher than the $232 billion estimated when the program started in 2002, according to documents provided to lawmakers on June 1. The figures are all in 2002, inflation-adjusted dollars.
The production cost alone of each airplane is now estimated at $92.4 million, according to the Pentagon’s cost estimation division. The originally envisioned pricetag for the airplane, seen as a low-cost replacement for F-16s, A-10s and other legacy fighters, was $50 million per copy.
However, Lockheed Martin executives believe that estimate is too high. Steve O’Bryan, Lockheed Martin’s president for the F-35 program, told reporters yesterday that the Pentagon’s official estimate is based on theoretical projections for three separate fighter aircraft programs, while the company’s numbers are based on “actuals.” Echoing Stevens, he predicted that the fighter would ultimately cost about as a much as a “comparably equipped” legacy fourth-generation fighter like the Boeing [BA]- built F/A-18 or Lockheed Martin’s F-16, approximately $60 million in 2010 dollars. This price presumes that orders remain at about the same level or higher over the life of the program, the executives said.
The company is building three variants of the F-35 for the Air Force, Navy and Marine Corps and several international partners. O’Bryan also said the efficiencies across the three variants are much higher than the Pentagon’s cost model presumes.
Earlier this year, Defense Secretary Robert Gates ordered that the F-35 program be restructured because of independent cost estimates that pointed to looming problems. Officials extended the current development phase, delayed the purchase of 122 production-model aircraft until after 2015 and added test assets to ramp up that portion of the program.
U.S. military trainers have said they are counting on the first production-model aircraft to roll off the Lockheed Martin line in Fort Worth, Texas, by this fall to begin flight training by the end of the year (Defense Daily, May 28).
Meanwhile, Lockheed Martin CEO Stevens also announced yesterday that the company will eliminate 50 percent of its usual participation at next month’s Farnborough Air Show outside London.
“We are not going to look at the world the same way going forward as we looked at the world in the past,” he said.
The event alternates annually with the Paris Air Show and is the largest in the world.
Stevens said the current economic climate and the need to signal to customers that the company is restraining unnecessary spending are behind the move.
“We’re going to challenge every expense. We’re going to examine every priority,” he said. ” We’re going to enrich our partnerships, but we’re going to do it in an increasingly cost-conscious way.”