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Global Competition Opens For F-35 Sustainment Deals

Jul. 6, 2014 - 03:45AM   |  
By AARON MEHTA   |   Comments
The F-35 Joint Program Office has a new way to sustain the global fleet, such as this F-35B model.
The F-35 Joint Program Office has a new way to sustain the global fleet, such as this F-35B model. (Lockheed Martin)
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WASHINGTON — The F-35 Joint Program Office (JPO) has begun carrying out a game-changing plan for sustainment on a global scale, one that relies heavily on competition to help drive down costs.

The plan divides the F-35 user base into three regions of North America, Europe and the Pacific, with the JPO assessing what sustainment work is needed for each region and what can be done with a more centralized system, US Air Force Lt. Gen. Christopher Bogdan, the head of the JPO, told Defense News in a June 30 interview.

This marks the first details of how the fighter jets will be maintained on a global scale. Until now, it had been unclear whether original equipment manufacturers would form the core of sustainment, or whether it would be opened to competition.

“We recognize that one of the most important things for building the global sustainment posture is flexibility,” Bogdan said. “Because it’s going to change, and it’s going to change over time, many times ... . We’re trying to build in a system that provides enough flexibility while at the same time gaining the synergy of everyone sticking together.”

The department has asked partner nations and foreign military sales customers to examine their industries and decide which components they would like to sustain. The JPO then takes their input, looks at the business case for each country, weighs it against operational considerations and security concerns and “assigns” — Bogdan emphasized the Pentagon will assign the roles — what each nation would be the best to handle.

It’s a strategy Bogdan believes will lead to both cost and strategic benefits. Each country will be responsible for setting up the required infrastructure on its own dime.

The F-35 has always been partly a jobs program for countries that bought into the jet, with politicians citing local economic impact as a reason to select the fighter over competitors. The new plan could be a way to create steady sustainment jobs around the globe for a fighter that should be in use for decades.

The sustainment market for the F-35 is $122 million but should grow to $1.9 billion by 2022, said Hal Chrisman, vice president at research firm ICF International. That growth unsurprisingly mirrors the increase in number of planes, which ICF expects to be nearly 1,000 worldwide in that same timeframe, with two-thirds of those being the conventional take-off and landing F-35A model.

“Having a global sustainment program is the most economical, logical approach [to ensure] you don’t have capabilities being stood up around the world that overlap,” Chrisman said.

The plan also provides protection for countries that are willing to invest upfront, Bogdan said. Any country that is assigned part of the sustainment program is guaranteed at minimum their national share of that program. So if country A has procured 50 F-35s and has built the infrastructure to sustain the landing gear, it is guaranteed to have the sustainment business for its fleet for that part.

Where competition comes into play is the workload above what each nation has. The JPO can assign multiple countries within a region the same sustainment role. Each country is guaranteed its respective fleet’s worth of work, but can also compete for other regional operator’s work. The country that does the work most efficiently, for the least cost, will get the bulk of the work, Bogdan said.

The first two pieces of the plane to go under this plan are the heavy airframe maintenance and heavy engine maintenance, which Bogdan expects to assign for Europe and the Pacific by December. Other pieces of the plane, such as landing gear and support equipment, will be assigned in 2015, with smaller pieces sorted out in 2016.

Italy and Japan have already invested in domestic final assembly and checkout (FACO) facilities to produce jets in-country. While not committing to making those the regional sustainment centers for Europe and the Asia-Pacific, Bogdan hinted they will likely play a role.

“The Italian government invested somewhere near $1 billion of their own money to build that FACO. It would not be wise for us not to try and leverage that investment,” Bogdan said. “It’s not some kind of handout, but the Italians invested a significant amount of money and are now bringing forth an opportunity for the whole enterprise to save resources by utilizing that investment.”

Roberta Pinotti, Italy’s defense minister, has indicated the country wants to see more European F-35s produced out of its FACO.

The Japanese situation is more complicated, given the nation has only just overturned a ban on shipping military products out of country. Even there, however, Bogdan noted that his team cannot turn “a blind eye” to the presence of a FACO in the Pacific.

Turning the FACOs in Italy and Japan into regional maintenance centers would make sense logistically, but may not fly politically with partner nations that hope to boost local economies.

“Getting the other operators in Europe or Asia to depend fully on that logistics center is going to be challenging,” Chrisman said. “There are politics and national interests where they say ‘We need control of this capability and we’re not willing to send it outside the country.’ I believe the appropriate approach would be to have these regional centers of sustainment and have them support all the aircraft. If they could find some way to share the benefits of that, then I think you might be able to make it work.”

The potential losers in this deal are Lockheed Martin, the developer of the plane, and engine-producer Pratt & Whitney. If sustainment roles are spread throughout the world, rather than at their US locations, it could cut into the large revenue streams both companies seemed assured of for the lifespan of the jet.

In addition to global competition for sustainment, the companies could also lose their role as product system integrators — the companies in charge of looking at what needs to be done globally and maintaining the supply chain — if they don’t “prove” to Bogdan that they represent the cheapest, most effective solution.

Chrisman believes keeping Lockheed and Pratt in prominent roles would be good for the overall program. He said a performance-based logistics contract, where the primes maintain oversight of the supply chain and sustaining engineering, would help keep costs down across the board.

The original equipment manufacturers realize that what they really need is control on the material that goes into those parts, [because] from an economic business point of view, that’s where they make their money,” Chrisman said. “They don’t make money turning wrenches.”

Asked how those companies reacted to his new plan, Bogdan, whose first public comments when he joined the F-35 program involved lambasting Lockheed, said “let me give you a philosophical statement… everyone likes competition, except the incumbent.”

A Lockheed Martin spokeswoman said the company plans to “earn” the sustainment role.

“Lockheed Martin is the prime contractor for sustainment of the F-35 today, and through demonstrated outstanding performance, we intend to earn that role for the life of the F-35,” company spokeswoman Laura Siebert wrote in a statement. “Today, our F-35 training and sustainment solutions are in use at nine locations. We will be supporting F-35 operations for more than 500 aircraft at 24 bases by 2019.”

“The concept of a competing workload has been integral to the P&W sustainment strategy,” Pratt & Whitney spokesman Bradley Akubiro wrote in a statement. “We are working, as General Bogdan has suggested, to earn our position as the product support integrator by demonstrating the benefits of a P&W integrated support network.”

Domestically, the JPO is also investigating an “eye-level” sustainment option that would allow the services to perform maintenance at the unit level rather than shipping the plane back to a depot.

“We have done some studying and from an operational perspective, some eye-level capability probably affords the sea services some operational advantage, and if it turns out that there is a cost to doing that that would be their decision as to whether the benefit is worth that cost,” Bogdan said.

However, the strategy that might work for the US Marines or Navy may not work for the Air Force, which will have a much larger fleet spread across active, guard and reserve components. Doing the same type of sustainment plan may be “cost prohibitive” for the Air Force, Bogdan said.

The new deal is just one example of the increasing importance of the international community for the F-35.

While the US remains by far the single largest customer for the plane, budget realities mean the only hope of ramping up production on the F-35 will come from overseas procurement.

“They need to reach escape velocity in terms of improving costs and then using those lowered costs to drive improving demand,” said Richard Aboulafia, an analyst with the Teal Group. “With the US budget stuck, foreign buyers are pretty much the only way forward for some time.”

But how stable are those long-term agreements to buy more planes? The history of the F-35 program is littered with cuts to procurement plans, driven by both political and budgetary pressures.

With South Korea expected to officially sign onto the program shortly, there are limited options for new customers. The two most notable are Singapore, which has expressed repeated interest in the F-35, and Taiwan. The latter is unlikely to get the plane due to concerns over reaction from China. There is also persistent speculation that once Israel’s F-35s are operational, the US will begin exporting to Arabian Gulf states such as the United Arab Emirates.

Aboulafia argues that the final program tally is less important than getting international customers to put money down in the near future.

“It doesn’t matter what they plan to buy in the long run,” he said. “All they need is enough people to start to take four to six planes a year now. You get 10 countries to take five planes a year, it can solve most of your problems.” ■

Email: amehta@defensenews.com.

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