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The Next $1 Trillion Market: F-35 Sustainment Work

Pentagon Hopes Competition Will Lower Costs

Nov. 4, 2012 - 01:31PM   |  
By AARON MEHTA and MARCUS WEISGERBER   |   Comments
Support work for the F-35 Joint Strike Fighter is projected to be worth more than $1 trillion over the next 50 years.
Support work for the F-35 Joint Strike Fighter is projected to be worth more than $1 trillion over the next 50 years. (U.S. Air Force)
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With the Pentagon set to purchase fewer large platforms in the coming decades, defense companies are positioning themselves for the next best thing: the repair and upkeep of existing military equipment, a business that could be worth trillions of dollars.

That shift will be on full display starting Nov. 14, when more than 100 defense firms will descend on Washington for an industry day focusing on sustainment of the multinational F-35 Joint Strike Fighter program. Sustainment of the aircraft is projected to cost more than $1 trillion over the next 50 years, and the companies will be scoping how to snap up their piece of the JSF sustainment pie.

The JSF program office (JPO) in Arlington, Va., will host the sustainment-themed industry event, with the hope of creating more competition to drive down costs.

“We want to reduce F-35 life-cycle costs by injecting competition into the program,” said JPO spokesman Joe DellaVedova. “Our goal is to maintain a performance-based logistics strategy, where products and services are delivered on time and at, or below, costs.”

Companies are scheduled to hear presentations from program leadership on the first day of the meetings, followed by a series of 20-minute “one-on-one” sessions. DellaVedova said the meetings, which will be constrained to small groups, were so popular that the JPO had to add a third day to accommodate everyone.

The $1 trillion F-35 sustainment estimate has caused sticker shock among U.S. and foreign lawmakers, prompting program officials to look for every possible way to lower the costs. Robust competition for sustainment is one way F-35 officials believe they can reduce spending.

This month’s meeting with companies is an early step toward developing a long-term sustainment plan. The event will have four main focus areas: supply chain management, such as warehouse concepts and shipping containers; simulation training services, such as infrastructure for training centers and simulators; support equipment; and the Autonomic Logistics Information System (ALIS), a comprehensive software-intensive system designed to manage maintenance and spare parts.

The F-35 program office released the names of companies participating and their areas of interest on a federal contracting website.

Most companies listed multiple areas, with 43 companies expressing an interest in supply chain management, 38 in support equipment, 31 in training and simulation, and 41 in ALIS.

An industry source said the goal of the event is to “listen and learn” from the program office in the hope that information will aid in future contracts for JSF sustainment.

In addition to companies, representatives from the eight JSF partner nations have been invited to attend the open briefing. Partners can also set up a 20-minute time slot, but so far only the government of Australia has signed up to participate.

The industry event is closed to the public, and only companies that have been accepted as participants will be allowed to attend.

The meeting was announced in late September, shortly after Air Force Maj. Gen. Christopher Bogdan, the F-35 deputy program manager, suggested that competition and performing sustainment work within the military might help lower cost estimates for the program. Bogdan has been nominated to succeed Vice Adm. David Venlet as head of the F-35 program.

DellaVedova said “introducing competition to the program office has always been part of the plan.

“This doesn’t move us away from the baseline sustainment strategy,” he added.

The program office has already taken steps to create competition, awarding BAE Systems a contract to develop an alternative design for the high-tech helmet necessary to employ the advanced combat features of the F-35.

BAE will be well-represented at the industry event, having reserved five time slots for presentations — the most of any participant. Spokeswoman Kristin Gossel confirmed the company’s presence but said the details about who would be presenting and what coordination there would be among the company units was still being discussed.

Representatives from Lockheed Martin, the primary contractor on the F-35, also will attend.

“While we won’t deliver a formal presentation, we will participate in industry day and are supporting the JPO’s efforts to find opportunities to reduce F-35 sustainment costs,” Lockheed spokesman Michael Rein wrote in an email.

Suggestions Welcome

Just as companies hope to gather information from the event for future contracts, the program office hopes to collect ideas on how to move forward with its acquisition and sustainment strategy.

There are no plans for a follow-up industry event, but DellaVedova said he could envision one.

The sustainment plan for the F-35 is still in the “preliminary” stages, according to Rebecca Grant, president of the IRIS research group, which is not unusual for a project that has produced only a handful of jets to date. What is unusual, she said, is seeing the focus on sustainment this early in the project, before a significant number of hours have been flown on the aircraft.

Projecting plans and costs for the F-35 based on the data available now is “like looking at a kindergartner and asking how he’ll do at college,” Grant said.

A December 2010 Defense Department report put the sustainment cost for the U.S. F-35 fleet at $1.1 trillion, a number said to cover all costs for the roughly 2,500 fighters over 50 years.

Grant, like other experts, questions that figure.

“To think you can accurately project a number that far is a little silly,” she said.

While the trillion-dollar price tag is eye-catching, Grant believes the cost of the jet will come down as more planes are built and that the costs will eventually be on par with the F-16s — one of the fighters it will replace — over the 50-year period.

Fierce competition is also expected for U.S. and international F-16 modifications and upgrades in the coming years. Over the past year, companies have competed for F-16 sustainment contracts in South Korea and Taiwan, with BAE winning the former and Lockheed winning the latter contest.

Combined, those contracts are worth nearly $3 billion. The U.S. Air Force plans to upgrade 300 F-16s in the coming years, piquing the interest of many companies.

The F-35 will replace four aircraft variants across the Air Force, Navy and Marine Corps.

The Air Force will replace its A-10 attack jets and F-16s, the Navy its older F/A-18 Hornet strike fighters and the Marine Corps its AV-8B Harrier jump jets.

The Pentagon handles sustainment of these aircraft differently. In most cases, the government has allowed the original equipment manufacturer (OEM) — or the company that acquired the OEM — to perform some sort of sustainment work. The military also does some sustainment work at logistics centers.

In the case of the A-10, three companies — Lockheed, Boeing and Northrop Grumman — each compete for incremental upgrade work.

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