Lockheed Martin F-35 Lightning II - Development - Program Cost Increases and Further Delays

Program Cost Increases and Further Delays

In 2006, the GAO warned that excessive concurrency in F-35 production and testing might result in expensive refits for several hundred aircraft planned to be produced before completion of tests. In November 2010, the GAO found that "Managing an extensive, still-maturing global network of suppliers adds another layer of complexity to producing aircraft efficiently and on-time" and that "due to the extensive amount of testing still to be completed, the program could be required to make alterations to its production processes, changes to its supplier base, and costly retrofits to produced and fielded aircraft, if problems are discovered." The United States Air Force (USAF) budget data in 2010, along with other sources, projects the F-35 to have a flyaway cost from US$89 million to US$200 million over the planned production of F-35s. In February 2011, the Pentagon put a price of $207.6 million for each of the 32 aircraft to be acquired in FY2012, rising to $304.15 million ($9,732.8/32) if its share of RDT&E spending is included.

In 2011, program head Vice Adm. David Venlet confirmed that the concurrency built into the program "was a miscalculation". This was during a contract dispute where the Pentagon insisted that Lockheed Martin help cover the costs of applying fixes found during testing to aircraft already produced. Lockheed Martin objected that the cost sharing posed an uninsurable unbounded risk that the company could not cover, and later responded that the "concurrency costs for F-35 continue to reduce". However, the Senate Armed Services Committee strongly backed the Pentagon position. In December 2011, Lockheed Martin agreed to a cost sharing agreement. The Aerospace Industries Association trade group warned that such changes would force them to change their behavior and anticipate cost overruns in their future contract bids. As of 2012, problems found in flight testing are expected to continue to lead to elevated levels of engineering changes (to be made to newly produced aircraft and retrofitted onto previously produced aircraft) through 2019. The total additional cost for concurrency in the program is around $1.3 billion.

In 2012, Schwartz decried the "foolishness" of reliance on computer models to settle the final design of the aircraft before flight testing found the issues that needed redesign.

On 21 April 2009, media reports, citing Pentagon sources, said that during 2007 and 2008, computer spies had managed to copy and siphon off several terabytes of data related to the F-35's design and electronics systems, potentially enabling the development of defense systems against the aircraft. However, Lockheed Martin has rejected suggestions that the project has been compromised, saying that it "does not believe any classified information had been stolen". However, other sources have suggested that the incident caused a redesign of the aircraft's hardware and software to be more resistant to cyber attack. BAE Systems was reported to be the target of the cyber espionage that may have stolen secrets related to the F-35.

On 9 November 2009, Ashton Carter, under-secretary of defense for acquisition, technology and logistics, acknowledged that the Pentagon "joint estimate team" (JET) had found possible future cost and schedule overruns in the project and that he would be holding meetings to attempt to avoid these. On 1 February 2010, Gates removed the JSF Program Manager, U.S. Marine Corps Major General David Heinz, and withheld $614 million in payments to Lockheed Martin because of program costs and delays.

On 11 March 2010, a report from the Government Accountability Office to United States Senate Committee on Armed Services projected the overall unit cost of an F-35A to be $112M in today's money. In 2010, Pentagon officials disclosed that the F-35 program has exceeded its original cost estimates by more than 50 percent. An internal Pentagon report critical of the JSF project states that "affordability is no longer embraced as a core pillar". On 24 March, Gates termed the recent cost overruns and delays as "unacceptable" in a testimony before the U.S. Congress. He characterized previous cost and schedule estimates for the project as "overly rosy". However, Gates insisted the F-35 would become "the backbone of U.S. air combat for the next generation" and informed the Congress that he had expanded the development period by an additional 13 months and budgeted $3 billion more for the testing program while slowing down production. Lockheed Martin expects to reduce government cost estimates by 20%.

In November 2010, as part of a cost-cutting measure, the co-chairs of the National Commission on Fiscal Responsibility and Reform suggested canceling procurement of the F-35B and halving orders of F-35As and F-35Cs. At the same time, Air Force Magazine reported that "Pentagon officials" are considering canceling the F-35B because its short range means that the bases or ships it operates from will be within range of hostile tactical ballistic missiles. However, Lockheed Martin consultant Loren B. Thompson said that this rumor is merely a result of the usual tensions between the U.S. Navy and Marine Corps, and there is no alternative to the F-35B as an AV-8B replacement. He also confirmed that there would be further delays and cost increases in the development process because of technical problems with the aircraft and software, but blamed most of the delays and extra costs on redundant flight tests.

The Center for Defense Information estimated that the program would be restructured with an additional year of delay and $5 billion in additional costs. On 5 November 2010, the Block 1 software flew for the first time on BF-4 which included information fusion and initial weapons-release capability. As of the end of 2010, only 15% of the software remains to be written, but this includes the most difficult sections such as data fusion. But in 2011, it was revealed that only 50% of the eight million lines of code had actually been written and that it would take another six years and 110 additional software engineers in order to complete the software for this new schedule. The total estimated lines of code for the entire program (onboard and offboard) had grown from 15 million lines to 24 million lines by 2012.

In January 2011, Defense Secretary Robert Gates expressed the Pentagon's frustration with the skyrocketing costs of the F-35 program when he said "The culture of endless money that has taken hold must be replaced by a culture of restraint." Focusing his attention on the troubled F-35B, Gates ordered "a two-year probation", saying it "should be canceled" if corrections are unsuccessful. However, Gates has stated his support for the program. Some private analysts, such as Richard Aboulafia, of the Teal Group state that the whole F-35 program is becoming a money pit. However, on 20 January 2012, Gates' successor, Leon Panetta, lifted the F-35B's probation, stating "The STOVL variant has made — I believe and all of us believe — sufficient progress."

Former Pentagon manager Paul G. Kaminski has said that the lack of a complete test plan has added five years to the JSF program. As of February 2011, the main flaws with the aircraft are engine "screech", transonic wing roll-off and display flaws in the helmet-mounted display.

The current schedule has the delivery of basic combat capability aircraft in late 2015, followed by full capability block three software in late 2016. The $56.4 billion development project for the aircraft should be completed in 2018 when the block five configuration is expected to be delivered, several years late and considerably over budget.

Delays in the F-35 program may lead to a "fighter gap" where America and other countries will lack sufficient jet fighters to cover their requirements. Israel may seek to buy second-hand F-15s to cover its gap, while Australia may also seek to buy more American fighters from the USN to cover their own capability gap in the face of F-35 delays.

Initial Operational Capability (IOC) will be determined by software development rather than by hardware production or pilot training.

In May 2011, the Pentagon's top weapons buyer Ashton Carter said that its new $133 million unit price was not affordable.

In 2011, The Economist warned that the F-35 was in danger of slipping into a "death spiral" where increasing per aircraft costs would lead to cuts in number of aircraft ordered which would lead to further cost increases and further order cuts. Later that year, four aircraft were cut from the fifth LRIP order to pay for cost overruns. And, in 2012, a further two aircraft were cut. Lockheed acknowledged that the slowing of purchases would increase the costs. David Van Buren, acquisition chief for the U.S. Air Force, said that Lockheed would need to cut infrastructure to match the reduced market for their aircraft. Lockheed has said that the slowdown in American orders will free up capacity to meet the urgent short term needs of foreign partners for replacement fighters. But Air Force Secretary Michael Donley said that there was no more money available for the project and that future price increases would be matched with cuts in the number of aircraft ordered. Later that month, the Pentagon reported that costs had risen another 4.3 percent, partially as a result of production delays. In 2012, the purchase of six out of 31 aircraft was tied to performance metrics of the program.

Japan has warned that it may halt their purchase if the unit costs increase, and Canada has indicated it has not fully committed to purchasing the aircraft. The United States is projected to spend an estimated US$323 billion for development and procurement on the F-35 program, making it the most expensive defense program ever. The total lifecycle cost for the entire American fleet is estimated to be US$1.51 trillion over its 50-year life, or $618 million per plane. Testifying before a Canadian parliamentary committee in 2011, Rear Admiral Arne Røksund of Norway estimated that his country's 52 F-35 fighter jets will cost $769 million each over their operational lifetime.

Also, in 2011, a Congressional Joint Strike Fighter Caucus was formed by some of the top recipients of Lockheed Martin contributions.

James Jay Carafano of the Heritage Foundation has suggested that it would be cheaper to build additional F-35s with known defective structures and fix these later than it would be to refit legacy aircraft to remain operational until full production of F-35s with full lifespan rated structural components could be built.

The program delays have affected the program's worldwide supply chain, causing Australian Quickstep Holdings to struggle for capital, in spite of their 20-year contract with Lockheed Martin.

In order to reduce the estimated $1 trillion cost of the F-35 program over its 50-year lifetime, the USAF is considering reducing Lockheed's role in Contractor Logistics Support for the fighter. Lockheed has responded that the trillion dollar estimate relies on future costs beyond its control such as USAF reorganizations and upgrades to the aircraft that have yet to be specified.

In 2012, in order to avoid further redesign delays, the U.S. DoD accepted a reduced combat radius for the F-35A and a longer takeoff run for the F-35B. The F-35B's estimated radius has also decreased 15 percent from initial JSF goal. In a meeting in Sydney in March, the United States pledged to eight partner nations that there would be no more program delays.

On 31 May 2012, Lockheed Chief Executive Bob Stevens complained that the Defense Department's requirements for cost data were driving up the cost of the program. The same week he admitted that a strike over the company's plans to strip benefits from workers might cause a shortfall in the plan to produce 29 F-35s that year. The striking union workers raised questions about the standards of the replacement workers, even as their own work had been cited for "inattention to production quality" with a 16% rework rate. The workers went on strike to protect pensions whose costs have been the subject of negotiations with the Department of Defense over the costs of the next batch of aircraft. These same pension costs were cited by Fitch in their downgrade of the outlook for Lockheed Martin's stock price. Stevens said that while he hoped to bring down the costs of the program, the industrial base was not capable of meeting the government's expectations of affordability. He was however able to force concessions on the workers while retaining top management's generous bonuses and pensions.

According to the latest Government Accountability Office report, the F-35's per unit cost has almost doubled, an increase of 93% over the program's 2001 baseline cost estimates. However Lockheed fears that if the tighter policies for award fees of the Obama administration are not reversed, their profits on the aircraft will be reduced by $500 million over the next five years. This was demonstrated in 2012 when the Pentagon withheld the maximum $47 million allowed for Lockheed's failure to certify its program to track project costs and schedules.

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