Massive $34 Billion F-35 Contract Includes Price Drop as Readiness Improves

The 158th Fighter Wing received its first two F-35 Lightning IIs during an event at the Vermont Air National Guard Base, South Burlington, Vt., on Sept. 19, 2019. Air National Guard photo by TSgt. Ryan Campbell.

The unit cost of the F-35A fighter will fall below $80 million a copy under an omnibus $34 billion Lot 12-14 multinational contract with Lockheed Martin, the Pentagon announced.

Pentagon acquisition boss Ellen Lord said Oct. 29 that while the F-35’s readiness has reached record levels, but that she still doesn’t expect it will exit development for at least another year.

The $34 billion contract for 478 aircraft—of which 291 are for the US services and 127 for foreign users—is the largest F-35 contract to date, and achieves a unit cost of $79.2 million in Lot 13 for the F-35A model used by the Air Force. The order breaks down to 351 F-35As, 86 F-35Bs, and 41 F-35Cs.

Lord told reporters at the Pentagon that the cost of the F-35A model used by the Air Force is a 12.8 percent drop from Lot 11, while the B and C models used by the Marine Corps and Navy, respectively, will fall by 12.3 percent and 13.2 percent. In Lot 12, 149 aircraft will be produced. Then, in Lots 13 and 14, 160 and 169 jets will be built, respectively.

Meanwhile, the average readiness of combat-coded F-35 unit mission capability has leapt from 55 percent a year ago to 73 percent in September, Lord said.

“While we are making progress, we are not where we need to be,” she noted, acknowledging that the F-35 missed its readiness goal of 80 percent by the end of fiscal year 2019 as set by former Defense Secretary Jim Mattis. The substantial increase in mission capability rates, though, is a sign that efforts by the Joint Program Office and Lord’s own acquisition and sustainment organization are paying off, and industry has pledged to “accelerating improvements in sustainment,” she said.

The key factors in the readiness gains include a focus on “accelerating our depot repair capability” for spare parts–making more parts available—and fleet modifications to more recent and sustainable configurations, Lord noted. There is also a continuing focus on “improved functionality” of the Autonomic Logistics Information System.

The bulk of cost reductions were in the F-35 airframe. The reductions in cost on the F135 engine are “only down on the order of three percent between Lot 11 and Lot 15,” F-35 Program Executive Officer USAF Lt. Gen. Eric Fick said.

Fick said the F-35 is in the closing stages of development, and continuing with Initial Operational Test and Evaluation, but won’t pass Milestone C—full rate production—until the F-35 is integrated with the Pentagon’s Joint Simulation Environment. The integration of the F-35 with “this complex synthetic environment” is key to assessing the aircraft against future threats, Fick reported. Lord said the JSE will help assess the aircraft in the “dense environment” of threats projected for 10 years into the future. Last week, she said she would hold off on a full-rate decision until the F-35 was integrated with the JSE.

“We have full confidence in the F-35s that are flying today,” Lord said, asserting that 90 percent of IOT&E work has been completed and “we are very confident in the configuration of the aircraft.”

The problem with the JSE is that “we got off to a slow start due to some disagreements with Lockheed Martin on how to proceed,” Fick explained, noting that early in the program the program relied on a Lockheed-proprietary software called V-Sim. That work was then “pulled out of a proprietary environment” and into the JSE so that all the services could use it for all their systems.

“There’s simply a lot of work to be done,” in JSE because the fights simulated “get more complex” with time, Fick said.

The Pentagon awarded a $7 billion contract covering 114 aircraft on Oct. 28. Fick said that action was “part of a series of obligations and contract awards that have been made over the years,” and was in addition to a contract for $11 billion for 255 aircraft for “advanced procurement, economic order quantities and associated work for the US and partners in Lots 12 and 13.” The $7 billion allows “work to begin on those aircraft,” he said. Another $10 billion contract was not included in the announcement because it “was previously made for the initiation” of work on those airplanes. The $10 billion funds completion of those 255 airplanes, he said.

“We are still left with about another 100 aircraft and $7 billion to go” on the Lot 12-14 contracts, he noted. Those awards can’t be exercised because the fiscal 2020 budget has not yet been signed into law, he explained.

Documents provided by Lockheed Martin, however, indicated that the actual prices would increase due to “Congressional plus-ups and other contractual settlements.” These adjusted prices for the A, B, and C models are $89.3 million, $115.5 million and $108.8 million, respectively, the company said. Some of these are US-government-covered costs for the expulsion of Turkey from the F-35 partnership program. Turkey makes nearly 1,000 parts for the F-35, and will continue to do so until March of next year, Lord said, adding that Turkey is a reliable supplier.

“There has been no change to return Turkey to the F-35 program” Lord asserted, noting that Lockheed and F135 engine maker Pratt & Whitney have “responsibility” for finding replacement vendors.

Asked if Air Force acquisition chief Will Roper’s plan to pursue a new air dominance platform within a five-year window would affect F-35 or F-15EX production, Lord said “we’re staying the course with the F-35” and not changing the acquisition goals, such as the 1,763 jets the Air Force says it needs.

“Will Roper and the Air Force are doing some very innovative and interesting things in terms of developing new fighter aircraft,” she said, and there will be a place for all three systems.

“We are taking all of this in the aggregate with a mission engineering approach using all the assets we have,” she said.

The program office is still evaluating future multi-year buys of the F-35, as well as a pitch from Lockheed to enter a performance-based logistics contract, Fick noted. “We are working with Lockheed today to define the parameters of” such a contract that would meet the demands of operators at the lowest cost “for greater organic involvement in F-35 sustainment,” he reported.

Lockheed noted that the F-35 costs represent “an integrated acquisition price” including “embedded sensors and targeting pods” sold separately and requiring additional sustainment costs on “legacy 4th-generation aircraft.”

“We are now at a strategic inflection point now in the program,” Fick asserted, “moving from initial development and fielding to modernization, high-rate production and global fleet sustainment.” He said the JPO is changing its relationship with Lockheed and Pratt & Whitney, “transitioning away from purely-cost-focused incentives” toward longer-range efforts enabling a more agile development program.

“Our production contracts feature supplier incentive fees and performance incentive fees that drive cost reductions at the supplier level and improve production line velocity,” Fick said, while sustainment contracts “incentivize mission capability rates and supplier metrics that” focus on getting the airplane to the operators “when they need it.”