The total cost of acquiring the Lockheed Martin [LMT] F-35 Joint Strike Fighter has risen more than $27 billion due to an increase in per-unit cost because the Pentagon has slackened the pace at which it will buy the jets and engines made by Pratt & Whitney, a division of United Technologies [UTX].
According to the Selected Acquisition Report (SAR) for 2016 released June 18, overall F-35 program cost went up $27.4 billion, from $379 billion to $406.4 billion. Most of that increase – $23.7 billion – resulted from increases in Lockheed’s aircraft manufacturing, according to the SAR.
The cost hike was “due primarily to schedule variance for the U.S. procurement quantity profile for both the Air Force and the Navy, schedule stretch-out of the Air Force procurement buy profile from FY 2038 to FY 2044 due to a reduction in the peak production rate for aircraft from 80 aircraft per year to 60 aircraft per year and a quantity increase of 13 F-35Bs from 680 to 693,” the SAR says.
Lockheed Chief Executive Marillyn Hewson said Air Force officials have expressed a desire to buy as many F-35 jets as quickly as possible, but budget constraints have tied their hands.
“I know that in my discussions with the Air Force, there’s a desire to buy as many as they can, as quickly as they can,” Hewson said during a July 18 earnings call. “So I haven’t got an official position from them that they’ve reduced their procurement profile. That just happens to be what’s in that select acquisition report that came out … I mean certainly lots of opportunity to change the quantities as you can see just with what’s in the budget deliberations right now, the adds that are coming forward on the F-35 for the various services.”
Lockheed hired additional personnel and raised pay for employees working on the F-35 line, which cost an additional $1.5 billion. Revised estimates for non-recurring costs associated with “diminishing manufacturing sources for both the Air Force and the Navy also hiked the price about $1.6 billion.
Additional procurement cost increases were realized due to added funding for disruptive technology innovation partnership requirements for the Air Force and Navy (+$770.4 million) and revised estimating assumptions for the Navy (+$581.1 million). Lastly, costs increased due to additional funding for the Air Vehicle and Test program as a result of realignment of Procurement funding to RDT&E for the Air Force and Navy (+$429.1 million).
The F135 engine program also experienced a cost increase of $3.7 billion, or 6 percent, from $60 billion to $64 billion due primarily to the schedule stretch-out of the Air Force and Navy procurement from fiscal 2038 to fiscal 2044 due to a reduction in the peak production rate for engines from 80 engines per year to 60 engines per year and additional schedule variance for Air Force and Navy U.S. procurement quantity profile adjustments, the SAR said.
There was an increase in quantity of 13 F-35Bs from 680 to 693 (+$221.3 million, which cost an extra $221 million. The F-35B is capable of short-take off and vertical landing powered by an engine with a lift fan element that makes it the most expensive variant.
Additional procurement cost increases were realized due to the incorporation of the latest actual costs used in the revised current estimate for both Air Force and Navy engines. Also, procurement costs were realized with revised escalation indices (+$72.7 million), revised estimating assumptions for the Air Force and Navy (+$62.1 million), and a decision to buy more spare engines based on data from executed flight hours (+$117.8 million).
Pratt also boosted its workforce to the tune of $327 million to cover engine manufacturing for the Navy and Air Force jet engines.
Lockheed’s Chief Financial Officer Bruce Tanner said that the decreased buy quantities are in out years and that before then the services could reap savings through block buys, which they are not currently authorized to pursue.
“The planned peak volumes for the U.S. Air Force are sort of far out there right now,” Tanner said, on the company’s second quarter earnings call. “Just to give you some perspective on that, we’re still in discussions with the Joint Program Office relative to a potential block buy.”
The potential block buy would include as many as 450 aircraft in low-rate initial-production (LRIP) lots 12, 13 and 14. Producing the necessary 150 or so aircraft per year would bring down the unit cost significantly, Tanner said.
“These [LRIP lots] are literally right around the corner,” Tanner said. “That’s 150 aircraft, with the U.S. Air Force buying 48 aircraft in each of those three fiscal years. So the cut to … 60, we’re not even approaching the 60 yet, and we’re building aircraft of quantities of 150 per fiscal year.”
The Pentagon’s F-35 Joint Program Office did not respond to a request for comment on the findings outlined in the SAR.