$30 Billion F-35 Deal Will See Prices Rise, Deliveries Dip

The unit cost of F-35 fighters will creep up in a $30 billion, three-lot deal announced Dec. 30, driven by a more sophisticated product, inflation, and lower U.S. sales volume, while annual deliveries will slip.

Meanwhile, some F-35s remain grounded and others undelivered following the crash of an F-35B on Dec. 15.  

The deal, which defines production for Lots 15 and 16 and sets options for Lot 17, calls for 398 F-35s to be built over the three years, including foreign orders. The agreement calls for 145 aircraft in Lot 15, 127 aircraft in Lot 16, and up to 126 in Lot 17, which will include the first airplanes delivered to Belgium, Finland, and Poland.

The open-ended Lot 17 allows for 23 more jets than the Pentagon originally planned. When the “handshake deal” on the three lots was announced in July 2022, Pentagon acquisition and sustainment chief William LaPlante said it was “based on” as many as 375 jets.

Either way, however, deliveries are declining—the Lot 12-14 deal, inked in 2019, covered 478 aircraft. The Air Force has requested fewer F-35s in the last couple of years, saying it prefers to wait for the all-up Block 4 model of the jet in order to avoid modifying older aircraft to the more capable configuration later. The other services have followed suit. Making up for some of the deferral of purchases, though, has been strong international sales of the F-35. Congress has also added back some of the jets the services did not request.

The agreed Lot 15-17 numbers average 132 airplanes per year; well below the 156 per year predicted by Lockheed Martin CEO Jim Taiclet in an investors’ call a year ago. Lockheed is anxious to avoid a boom-and-bust cycle of production, as it plays havoc with workforce and economic materials purchases.

In a January 2022 investor call, CFO John Mollard said “the last thing you want is a sawtooth pattern” of up-and-down production rates.

In a statement announcing the deal, F-35 Joint Program Office director and program executive officer Lt. Gen. Michael Schmidt said the deal “strikes the right balance between what’s best for the U.S. taxpayers, the military services, allies, and our foreign military sales customers.”

The unit cost of the fighters will average about $75 million a copy, but that is without the Pratt & Whitney F135 engine. With the engine, the last three-lot deal achieved a unit cost below $80 million per jet. The JPO did not provide Air & Space Forces Magazine an all-up cost for the fighters in Lots 15-17.

For the airframe and mission equipment only, the Lot 15-17 cost of F-35s ranges “from $70.2 million to $69.9 million for the F-35A, $80.9 million to $78.3 million for the F-35B, and $90 to $89.3 million for the F-35C,” a Lockheed spokesperson said.

The A model is a conventional takeoff type, while the B is short takeoff/vertical landing version and the C is configured for aircraft carrier operations. It has larger wing and tail surfaces and other structural differences to make it capable of withstanding carrier takeoffs and landings.

From Lot 14 to 17, “the F-35A aircraft vehicle cost, on average, only increased 6.5 percent; less than the rate of inflation,” the Lockheed spokesperson added. The Lot 15 airplanes are already in early stages of manufacture.

The agreement represented the longest period of negotiation on an F-35 lot to date. The “handshake deal” was reached ten months after it was expected to be concluded—when it had already been under negotiation for more than a year—which former JPO officials said was due to extensive bargaining over inflation, labor costs for Lockheed, lingering supply chain effects from the COVID-19 pandemic, and the uncertainties attending the services’ planned buys. The final deal came after a further five months of haggling.  

Lockheed has been warning for two years that Lot 15 and later lots would cost more due to the greater capability being built into the jet. Another factor has been the slower sales growth for the U.S. services, which are the biggest customers for the fighter.

Lot 15 is the first that will include Tech Refresh 3 (TR-3), which is a suite of more powerful processors and other capabilities that make the Block 4 version of the F-35 possible. Other improvements in Lot 15 include a panoramic cockpit display and a more powerful memory.

As part of the Block 4 upgrade, some 75 changes are in the works. These include new or additional weapons, communications and networking upgrades, electronic warfare improvements, cockpit and navigation enhancements, and “radar and [sensor] fusion updates,” the Lockheed spokesperson said.

After 141 aircraft delivered in 2022, the worldwide F-35 fleet now numbers 894 airplanes. Lockheed officials have said they are contemplating a celebration at their Fort Worth, Texas facility in late summer, when the 1,000th F-35 will roll off the assembly line.

Lockheed was due to deliver 148 F-35s in 2022, but the Dec. 15 crash of an F-35B caused the government to stop accepting deliveries of the fighter. The mishap aircraft suffered an engine problem in vertical landing mode; video of the accident became a viral sensation last month. The pilot survived a low-altitude ejection. The jet had not yet been transferred to the government at the time of the crash.

The halt meant that Lockheed fell seven aircraft short of its planned deliveries in 2022, even though the aircraft were finished. The accident stopped both final test flights and acceptance flights.

There are now nine aircraft waiting for final test and delivery.

An Air Force spokesperson said that a “small number” F-35As in USAF service are grounded until a technical compliance/technical directive is completed. While she did not provide details, a TC/TD usually means that a part or system must undergo inspection, and if a problem or faulty part is found, be replaced.

A government source said the problem seems to be engine-related, and so far, only jets with “a few dozen” flying hours or less are being inspected for the problem.  

“The scope and duration” of the effect on the USAF F-35A fleet “are to be determined based on additional ongoing analysis,” the Air Force spokesperson said. She did not say how many F-35As are affected, or whether they are in a single unit or dispersed across the combat air forces.