Good News, Bad News: Joint strike fighters perform an aerial refueling mission. The estimated cost of the fighter has gone up and sustainment price estimates have declined. (Master Sgt. Donald Allen/US Air Force)
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 four years was a key factor in the $7.4 billion jump in the program’s price tag, revealed in the Pentagon’s latest round of annual cost estimates for 2013. The total cost to procure and develop the F-35 is now pegged at $398.6 billion.
“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 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 savings comes from efficiencies in the production process, 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 aircraft.
But Bogdan says DoD has shown 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 engine, which powers the F-35, are the same as others used in their diverse portfolio of military and commercial engines, he said.
While the production and development cost estimate increased, the sustainment estimate decreased by $89.4 billion and now totals just over $1 trillion to operate 2,443 US F-35s through 2065.
“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,” Bogdan said. “The curve is still coming down, year after year after year. 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 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, when the purchase of 33 aircraft, mostly Navy, were delayed.
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. Foreign purchases of the aircraft are also expected to lower the overall cost.
More troubling to Bogdan was the $4.3 billion cost increase of the Pratt & Whitney-built F135 engine.
“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 estimates have increased $9 billion over the last three years, according to DoD documents.
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 said. “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.
Lockheed said it is “very pleased” with the overall reduction in program cost.■