New F-35 Block Buy is Close, Lockheed Says

An F-35A from the 56th Fighter Wing, performs a pass Oct. 1, 2019, at Luke AFB, Ariz. Air Force photo by A1C Leala Marquez

The $34 billion contract covering production Lots 12-14 of the F-35 fighter—encompassing some 478 aircraft—should be announced in the next two weeks, Lockheed Martin officials reported in a quarterly earnings call Oct. 22.

“We’re now going through some housekeeping on the ‘block buy’ and hopefully we have that definitized in the next week or two,” said Kenneth Possenriede, Lockheed’s executive vice president and chief financial officer. Non-US partners are combining their purchases across several years in a “block buy” to raise production rates in order to achieve volume efficiencies and lower costs.

The US cannot participate in what the Pentagon terms a “multi-year” buy, however, until the program is in full-rate production, which cannot start until operational test and evaluation is complete. Pentagon acquisition chief Ellen Lord said last week that the F-35 likely won’t enter full-rate production by the end of 2019 as planned because of difficulty integrating the jet into Pentagon the Joint Simulation Environment, which is used to game out how many weapons systems are needed for various conflict scenarios. Operational Test and Evaluation otherwise is proceeding well, Lord said. The delay means full-rate production could be held up by a year, she acknowledged.

Lockheed’s Possenriede said the company is pleased with the program. “We feel good with the deals we’re getting with the customer,” he said. “We think they’re fair and reasonable; they’re balanced.”

Lord said the Lot 12-14 contract would be made public “soon,” having announced a “handshake deal” in June. She called it a “historic milestone” at the time because, beginning with Lot 13, the unit cost of the new fighters will be under $80 million — “one year earlier than planned.”

Lot 12 calls for 157 aircraft. Lockheed is on track to deliver 131 F-35s in calendar 2019, and plans to ramp up to 140 in 2020, 160 in 2021, and 170 in 2022. Peak production is expected to be about 180-185 aircraft per year, including the output of final assembly and check-out locations in Japan, Italy, and Fort Worth, Texas.

Possenriede also said the company is “socializing” a performance-based logistics proposal for the F-35 that would drive the operating cost per hour to under $25,000 before 2025. Company officials at AFA’s Air, Space and Cyber conference in September said the plan would save 16 percent a year versus current methodology, for a total of $33 billion in savings by 2033. Lockheed and its F-35 partners would pony up some $1.6 billion to get the program started, and would be reimbursed for that investment out of later savings.

“Industry would invest [and] commit to metrics,” Possenriede said, leading to “additional rewards.”

Lockheed CEO Marillyn Hewson said in the earnings call that the State Department has approved Poland’s purchase of 32 F-35A variants, at a value of $6 billion.

She said Lockheed will recoup any losses resulting from the ejection of Turkey from the F-35 partner program. “The US government has documented that Lockheed Martin will not absorb any impact for planes we’ve built or are currently building for Turkey,” he said. “We can bill and collect for that.” Hewson said the Turkey exit “is a decision by the US government to take Turkey out of the program. We have a contract modification that the US government covers all that risk.”

Lockheed and Pratt & Whitney, builder of the jet’s F135 engine, have been “reassigning” the work being done by Turkish companies and “establishing alternate sources of supply,” Hewson said.

Turkey was to have purchased 100 F-35As, two of which have been completed and are at Luke AFB, Ariz., where international and US F-35 combat training takes place. The US has not said what will become of the two jets. Turkey was expelled from the F-35 program over its insistence on fielding the Russian S-400 air defense system, which the US says would compromise the F-35’s stealth secrets.

Possenriede listed new sales that more than make up for the loss of Turkish sales:

  • Japan has increased its order by 105 aircraft
  • Belgium will buy 34
  • Singapore will buy “a modest amount to start”
  • And competitions continue in Finland, Switzerland and Canada.

Getting the price under $80 million in lot 13 will “certainly help with those possibilities,” he said. Germany has indicated a preference for the F/A-18E/F, but Possenriede said, “We don’t think we’re out of the German competition yet.”