Washington: The head of the Pentagon’s Joint Strike Fighter blasted new cost increases in the program today, calling them “an extreme and problematic burden to the US Air Force, Navy and Marine Corps.”
Echoing recent comments by the head of Pentagon acquisition, Ash Carter, Vice Adm. David Venlet said in a prepared statement that, “Costs must come down significantly to make this aircraft one we can afford.”
For the first time since initial stories broke a few days ago about a substantial cost increase in the first three low-rate production runs, Venlet detailed exactly how much they have risen. “The first three initial production contracts are exceeding target costs by 11-15 percent. Over-target cost projections for the 28 U.S. aircraft in these production lots total $918 million. The U.S. Government is responsible for paying $635 million and the contractors [Lockheed Martin and Pratt & Whitney] pay $283 million by reducing their target fee. Adding to the extreme burden, and a product of the plan that is concurrently testing and producing aircraft, $136 million [to fix cracked bulkhead on F-35B and other problems] is required to modify early production aircraft to attain useful service life and capability,” Venlet said in the lengthy statement.
So, to pull some of that dense information apart, the government will pay an additional $635 million in LRIP lots 1-3. To bring the F-35Bs up to speed and pay for unexpected fixes, the government will pay another $135 million, bringing the government total to $771 million. Lockheed and Pratt will pay $238 million of the $918 million.
A congressional aide was was withering in reaction to the news of the new cost figures: “$6,566.0 million for 28 production jets…$234.5M each… That’s a long way from the unit recurring flyaway cost established in 2002 by the JROC,” the aide wrote. [Eds. note — Those unit costs, set in a June 6, 2002 memo in 2002 dollars by Gen. Peter Pace, were: $37.2 million for the F-35A; $48.1 million for the F-35C and $46 million for the F-35B.] “And so, how does DOD define ‘affordable’?” That is one big delta.
Lockheed was at pains to put the nicest spin on the news. “The numbers you are seeing are still being scrubbed and are the worst case scenario. On the Lockheed Martin side we are working hard to lower it,” said F-35 spokesman Mike Rein. That said, as we indicated in May, whatever the final total is we will pay approximately 30 percent of the overrun.”
All this raises the very important question — what next? The clearest and most obvious effect will be on the LRIP 5 negotiations underway. Lockheed will find itself courteously slammed against the wall and told to cough up the lowest price. “Going forward, controlling costs is an absolute must. We worked for the last year to obtain substantial insight into F-35 manufacturing span times and costs,” Venlet said in his statement.
He notes that in LRIP 4, “overruns to the target cost result in equal sharing of overruns between the contractor and the Government up to a ceiling amount. Cost overruns that exceed the ceiling price are all paid by the contractor.” That sounds like a not-so-subtle hint to Lockheed.
At the end of the statement, Venlet eases off, saying that “early production aircraft always have higher costs that come down a learning curve.” He adds that the Joint Program Office, which he heads, is “pleased with signs of emerging stability in the manufacturing flow at Lockheed Martin, Pratt & Whitney and in their supplier teams. We have confidence in the plan to get the development program on track.”
Can you hear those Lockheed and Pratt executives wailing? Well, they have more to wail about, especially since the company announced today that 6,500 U.S.-based employees “are eligible” for a “voluntary program” to leave the company this fall with a severance package. This is Lockheed’s second round of voluntary separations. The first round netted 3,300 Lockheed employees. 
