Lockheed Asks Pentagon to Pay More Now to Save More Later on F-35 Jets

03/08/18 10:32 AM EST
By Doug Cameron 

Lockheed Martin Corp. has a plan to cut the daunting cost of its F-35 combat jet.

But for that to happen, U.S. taxpayers would first have to pay more upfront to trim the price tag of the world's most expensive military program.

The Bethesda, Md.-based Lockheed wants to persuade lawmakers and the Pentagon to buy hundreds of the jets in a single, multiyear contract in the early 2020s to harvest economies of scale from increased production, said Jeff Babione, the Lockheed executive in charge of the F-35 program.

The plan, due to be unveiled later this month, comes as senior Pentagon leaders grow frustrated with efforts over the past three years to cut the cost of buying and flying a fleet of up to 2,400 of the radar-evading jets.

The F-35 fleet would replace most U.S. jet fighters over the next 30 years at a cost of more than $400 billion. U.S. allies plan to buy up to 500 more.

Lockheed and its partners have already cut the average price of the F-35A model used by the U.S. Air Force to around $95 million, from $122 million five years ago. They aim to reduce this to roughly $80 million by the end of the decade. But Pentagon leaders want bigger cuts as annual production climbs toward 150 jets in the early 2020s, from 66 last year.

The F-35 is Lockheed's biggest franchise, already accounting for a quarter of sales, and the company has pledged to drive down the costs, aggressively.

"Ultimately we all share the same enemy: cost," said Mr. Babione. The company oversees the F-35 production at a mile-long factory near Fort Worth, Texas. "Our focus remains on achieving an $80 million airplane by 2020 and believe the biggest levers to reduce cost beyond that are the use of economic order quantities, cost reduction initiatives, and a multiyear contract."

Mr. Babione, who later this month will take over Lockheed's secretive Skunk Works development arm, said reducing the price would require more than the $230 million the Pentagon has already paid for work to reduce the plane's costs. The existing efforts have generated $4 billion in lifetime savings from the program.

Pentagon officials say they worry the F-35's high costs will force the Defense Department to cut the number of planes ordered so that it can continue to fund other projects such as new ballistic-missile submarines.

"We can't afford the sustainment costs we have on the F-35," Ellen Lord, the Pentagon's chief weapons buyer, told reporters in January. "And we're committed to changing that."

Navy Vice Adm. Mat Winter, the military head of the F-35 program, last week criticized Lockheed's tactics in negotiating the sale of the next batch of 130 planes. He said the government would take over some repair work so contractors could focus on producing more spares parts to tackle reliability problems.

The most controversial aspect of the Lockheed plan is the company's push for multiyear purchases. Critics of the F-35 program warn that it is too early to consider big deals with Lockheed.

"If the Pentagon is really serious about making the F-35 affordable, they will stop buying them until the design has been completed and verified effective," said Dan Grazier at the Project On Government Oversight, a Washington, D.C.-based watchdog.

Design and production changes would also make the plane cheaper to operate, such as a completed project that replaced air filters on the three different types of the plane with a single one.

The Pentagon could also choose to share widely the flight data that determines maintenance needs to spur competition beyond the project's main partners: Lockheed, Northrop Grumman Corp., BAE Systems PLC and the Pratt & Whitney unit of United Technologies Corp.

That could open the door for Boeing Co., which lost out to Lockheed in 2001 for the main F-35 contract, to finally take a role. The aerospace giant is one of the few big defense companies not involved in the sprawling multinational program. Boeing is rapidly expanding its aerospace services business, which is generally more profitable than aircraft production.

A Boeing spokesman wouldn't comment specifically on whether the company may pursue F-35 support work.

Write to Doug Cameron at doug.cameron@wsj.com


(END) Dow Jones Newswires

March 08, 2018 10:32 ET (15:32 GMT)

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