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F-35 Engine Cost Up, Sustainment Down

Apr. 17, 2014 - 03:45AM   |  
Joint strike fighters perform an aerial refueling mission. Estimated cost of the fighter has gone up although sustainment price estimates have declined. (Master Sgt. Donald Allen / US Air Force)
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WASHINGTON — Buying in bulk is key to lowering the cost of the F-35 joint strike fighter, the Pentagon’s most expensive weapons program, the general in charge of the effort said.

Cutting 33 planned F-35 purchases over the next five years was a key factor in the jump $7.4 billion increase in the program’s price tag, revealed in the Pentagon’s latest round of annual cost estimates for 2013.

“For every dollar that we save in production cost on this airplane, 80 percent of it can be attributed to economies of scale,” Lt. Gen. Christopher Bogdan, the F-35 program manger, said on April 17. “That’s just buying things in bulk. Instead of buying 10 titanium forgings, we now buy 100 and we get a good price deal.”

The remaining 20 percent comes from efficiencies in the production process.

“We have many, many, many projects on the books to that are either being implemented or getting ready to be implemented to tackle that 20 percent,” he said.

Bogdan has encouraged aircraft-maker Lockheed Martin and engine-maker Pratt & Whitney to make “multiple-year buys and long-term arrangements” with their suppliers.

From a company standpoint that could be seen as a risky move since the Pentagon has not signed a multiyear procurement deal for the jets. But Bogdan says DoD has show its commitment to the program over the past two-to-three years.

Despite defense spending caps and cuts made through sequestration, the F-35 program came out “basically unscathed,” he said.

“The business risk for [them] is much different than it was a few years ago where [they] were worried about whether this program was going to survive or not,” Bogdan said. “So with that reduced business risk, you need to go out and start getting long-term agreements with your suppliers so we could start taking advantage of the economies of scale in the supply base long-before statutorily I could ever do a multiyear.”

Pratt & Whitney has done this already since some components from the F135 are the same as others used in their diverse portfolio of military and commercial engines.

These officials also point to a massive $89.4 billion decrease in the estimated sustainment costs over the life of the program as a sign the effort is on better footing.

“Year after year, the price of the airplane continues to come down and year after year we negotiate ... much lower than the [estimated aircraft] price,” Lt. Gen. Chris Bogdan, the F-35 program manager, told reporters on Thursday.

“The curve is still coming down, year, after year, after year,” he said. “It’s not coming down as fast as we’d like it.”

This year’s procurement and development increase comes a year after the F-35 program posted a $4.5 billion decrease in DoD’s annual Selected Acquisition Reports (SARs), which provide cost estimates for the Pentagon’s major acquisition programs. The estimates reflect the lifetime cost to develop and acquire a system.

The cost of the F-35 aircraft itself increased $3.1 billion, according to the report, a number Bogdan said is primarily attributed to DoD jets from its budget plans between 2015 and 2018. Over that period the purchase of 33 aircraft, mostly Navy, were delayed.

“The two primary drivers that caused that procurement dollar amount to go up were labor rates for our prime contractors and for their major [subcontractors] ... and the fact that some of the partners moved the buy of their airplanes out to the right,” Bogdan said. “When you do that, the curve for the cost of the airplane doesn’t come down as fast as it would have and that’s reflected in the total procurement cost to go up.”

Foreign exchange rates also contributed to the increase, he said, noting that nearly 30 percent of the jet’s content is produced overseas. Bogdan said the aircraft cost increase is not attributed to poor workmanship by Lockheed.

But more troubling to Bogdan was the $4.3 billion cost increase of the Pratt & Whitney-built F135 engine, which powers the jet.

“We had a price curve for the engine. We thought we knew how much it was going to cost to build each engine,” Bogdan said. “Pratt’s not meeting their commitment. It’s as simple as that.”

Bogdan said Pratt assured the Pentagon “years ago that the engine was going to come down at a certain rate in terms of price. And they haven’t met it.”

“Some of their business base has dried up and other programs, projects, engines, both commercially and militarily,” he said. “And what they’re doing is they’re spreading their overhead costs and they’re spreading them right where they can. And I don’t like that.”

F135 engine cost estimate have increased $9 billion over the last three years, according to DoD documents. DoD split the F-35 aircraft itself and the engine into separate program lines in its 2011 SAR.

“Contractors are slow to shed costs when their business base changes,” Bogdan said. “They just leave people on too long and they spread those costs elsewhere.”

Bogdan said he was not advocating for Pratt and Lockheed to fire employees, but said, “they ought to rationalize their business base, with their overhead.”

Pratt & Whitney, through a spokesman, said it is “committed to delivering an affordable F135 propulsion system” for the F-35.

“We have a very aggressive cost reduction program in place,” the spokesman said. “We have invested more than $65 million into ‘War on Cost’ activities and reduced the cost of the F135 engine by more than 40 percent. We are pursuing cost reductions in every aspect of the program, including supply chain, configuration changes, process improvements and overhead.

“The key factor in driving down cost, however, is to increase the ramp rate,” he continued. “Delays in procurement have an effect on costs. We need production program stability in order to meet the cost objectives on the program.”

The SAR projects the total cost of the F-35 program through 2065. That includes 32 years of production and 55 years of support.

“This is really a tricky business when you try to project costs out that far,” Bogdan said.

The total cost of the program — which is based on 2,443 US aircraft — is now pegged at $1.4 trillion. That number includes the combined acquisition and development cost of the aircraft, which is now estimated at $398.6 billion. The pure sustainment estimate is just over $1 trillion.

But Bogdan said his office has more recent testing data and projects the sustainment costs much lower, at $917 billion.

The latest batch of Air Force F-35A versions cost about $112 million per aircraft. Bogdan said he projects the cost per aircraft by 2019 to be between $80 million and $85 million.

An increase in foreign aircraft purchases already on the books is expected to reduce the price of the program even further. Bogdan is expecting orders from South Korea and Singapore and additional buys from Israel.

“We’re pretty convinced Israel is not going to stop at 19 airplanes,” Bogdan said. “We know that’s coming, but we didn’t include that in here because it’s not a done deal.”

If those expected F-35 sales were included in the SAR estimate, the procurement cost estimate would have decreased, Bogdan said.

Lockheed Martin said it is “very pleased” with the overall reduction in program cost.

“While this is a significant reduction, we share [Pentagon acquisition chief Frank Kendall’s] view that we will achieve more savings in both the acquisition and operations and sustainment areas,” Laura Siebert, a Lockheed spokeswoman said in an e-mail. “We are confident that as the program continues to grow and mature, costs will continue to decrease.”

“We will work with the F-35 Joint Program Office to implement further cost saving measures,” she said.

The Rest of the SARs

The 2013 SARs show a “small net decrease” for DoD’s $1.6 trillion in weapons programs, according to a senior defense official.

Overall, four DoD programs breached federal spending caps. If a program breaches a so-called Nunn-McCurdy threshold, it could be canceled unless recertified by DoD. The four programs are:

■ Joint Precision Approach and Landing System.

■ Vertical Takeoff and Landing Tactical Unmanned Aerial Vehicle (Fire Scout).

■ AWACS Block 40/45 upgrade.

■ Joint Tactical Radio System Handheld, Manpack and Small Form Fit Radios (JTRS HMS).

“It’s not as good of news as [DoD] had last year,” the official said, noting no programs breached Nunn-McCurdy caps last year.

JPALS, a system that helps aircraft land on runways with great accuracy, breached the caps because the Air Force and Navy opted not to participate in the program. Ten airfields that were supposed to install the system canceled, therefore increasing the cost per unit, since development costs are distributed among each unit purchased.

The Fire Scout program breached because the Navy has changed the type of helicopter it uses. The original program used a small Schweizer helicopter. Schweizer was sold to Sikorsky, which no longer builds the helicopter.

“This has created a tremendous problem for us,” another senior defense official said.

Northrop Grumman, the program’s prime contractor, is now using a larger Bell 407 helicopter, which has much more capability than the smaller Schweizer for Fire Scout, according to second senior defense official. The increased capability has caused the program to shrink from a planned 168 helicopters to 119. The Navy already has 28 of the smaller Schweizer-based unmanned helicopters.

The AWACS Block 40/45 upgrade program breached because the Air Force is shrinking the E-3 AWACS fleet from 31 to 24 aircraft. The JTRS HMS program decreased “due to a revision in the acquisition strategy for full rate production,” and a change in the number of radios purchased by the Army each year.

A bright spot was the Air Force’s KC-46 tanker program, which saw its total program cost estimate decrease by $2.1 billion to an estimated $49.5 billion. The decrease was attributed to lower construction costs estimated at the bases where the planes will be stationed and reductions in 2015 through 2118 “given stable program execution and no engineering change proposals to date.”■


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