Lockheed Gets Edict to Cut F-35's $1.1 Trillion Support Bill

(Bloomberg) -- Lockheed Martin Corp. must find ways to reduce the Pentagon's current $1.1 trillion estimate to own and operate the F-35 jet, the world's costliest weapons program, according to the Defense Department's latest annual program overview.

According to the document, Lockheed “must embrace much-needed supply chain management affordability initiatives” to cut costs on the next-generation stealth fighter.

The $1.1 trillion estimate to sustain the U.S. F-35 fleet through 2077 was compiled in 2015 by the Pentagon's independent cost assessment office but has not been updated, according to the Selected Acquisition Report, or SAR, obtained by Bloomberg News. The Pentagon said this week that the estimate will be updated next year before acquisition officials meet to decide whether the program should enter full-production.

Although the estimate is unchanged, the acquisition report focused at length on the importance of reducing the $1.1 trillion figure as well comments from the F-35 program office pointing out what it said are shortcomings of the independent estimate.

The report acknowledges that under current forecasts, “the projected F-35 sustainment outlays are too costly” and “given planned fleet growth, future U.S. service operations and support budgets will be strained.” Bloomberg reported last week that the U.S. Air Force may have to cut its F-35 purchases by one-third, or about 590 jets, if it can't find ways to reduce operations and support costs by as much as 38 percent over a decade.

Read More: Air Force Chief Calls Lockheed F-35 Upkeep Costs a Major Concern

“Are O&S sustainment costs a major concern?” General David Goldfein, the Air Force chief of staff, said last month, referring to operating and support costs for the new fighter. “Absolutely.”

According to the acquisition report, Lockheed should also “optimize priorities across the supply chain for spare and new production parts, and enable the exchange of necessary data rights” to the U.S. military of software currently owned by the company.

Lockheed spokeswoman Carolyn Nelson said in an email that the Bethesda, Maryland-based company “is investing in several initiatives to lower the industry component” of the estimated costs and “continues to partner with the Joint Program Office to reduce overall operations” and support costs.

Cost Complaint

“We expect to see a similar cost reduction trend as we've seen with production as the sustainment program matures and the operational fleet grows,” Nelson wrote.

Although the F-35 program office has complained about the $1.1 trillion cost estimate, its own current estimate is only slightly less, according to figures contained in the report.

As of January, 268 F-35s were fielded and another 670 aircraft are expected to be delivered and fielded by 2023.

The Pentagon testing office's annual report to Congress on major weapons systems in January said the availability of the F-35 for missions when needed -- a key metric -- remains “around 50 percent, a condition that has existed with no significant improvement since October 2014, despite the increasing number of aircraft.”

‘Measured Successes'

The Pentagon report said that aside from the looming operations and support bill that needs to be reduced, the program last year “had measured successes” including delivering the final version of what is meant to be it's most capable software and establishing -- albeit years late -- initial depot repair locations in the U.S.

Among the key 2018 goals are “improving aircraft quality while driving costs out of the production line and supply chain” and “holding F-35 industry partners accountable to the performance and quality outcomes we require.”

The F-35 program office also chided Lockheed for its “slow negotiation behaviors” that “unnecessarily extends the time to contract award.” The parties have yet to finalize after months of back and forth the 11th low-rate production contract for the largest number of jets to date -- 141 F-35s for the U.S., international partners and foreign military sale customers.

“As production ramps up,” the F-35 program office “has concerns” with Lockheed's ability to negotiate in a timely manner to meet required delivery schedules with the required quality and performance,” the report said.

The company pushed back on that characterization Friday, with Nelson saying that “To prepare for full rate production, we've made significant investments in our facilities, processes and training to ensure we meet our increasing delivery targets and that every aircraft is delivered and operating to the highest standard.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net.

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Justin Blum

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