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F-35 Makers Chip in $170M to Shrink Costs

Jul. 12, 2014 - 03:45AM   |  
By AARON MEHTA   |   Comments
New Plan: US industry and military leaders have unveiled a plan to cut costs in the F-35 program through investments in research and development. From left to right: Bennett Croswell with Pratt & Whitney, Lorraine Martin with Lockheed Martin and Air Force Lt. Gen. Christopher Bogdan appear at the Royal International Air Tattoo in the UK.
New Plan: US industry and military leaders have unveiled a plan to cut costs in the F-35 program through investments in research and development. From left to right: Bennett Croswell with Pratt & Whitney, Lorraine Martin with Lockheed Martin and Air Force Lt. Gen. Christopher Bogdan appear at the Royal International Air Tattoo in the UK. (Aaron Mehta/staff)
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FAIRFORD, ENGLAND — The F-35 Joint Program Office (JPO) is trying anew to drive cost out of the plane, with industry partners agreeing to spend $170 million on internal research and development (IRAD).

Although both the program and corporate sides were clearly disappointed they could not show off the fifth-generation fighter on the first day of the Royal International Air Tattoo (RIAT) here, the two sides instead tried to focus on what Lorraine Martin, vice-president for the F-35 program at Lockheed Martin, called a “landmark approach” to cost savings.

That involves the IRAD investment by Lockheed and its corporate partners BAE Systems and Northrop Grumman. The companies will use those funds to find ways to shave costs off the plane, in turn handing those savings over to the Joint Program Office during negotiations of future lots of F-35s.

Martin offered the example of changing the canopy bow frame material.

“We’re going to change the material,” she said. “When we change that, it not only will bring down the price but the lead time. It’s going to take me $340,000 to do that and over the life of the program it’s going to save $31 million. Those are huge return multipliers and that’s what we’re looking at.”

The F-35 team estimates this could shave $10 million off the cost of each jet, saving $1.8 billion through 2019.

US Air Force Lt. Gen. Christopher Bogdan, the head of the F-35 Joint Program Office, said on July 10 that this “blueprint for affordability” is a sign of increasingly warm relations between the corporate and customer sides of the fighter program. He also noted that while engine-manufacturer Pratt & Whitney is not involved in the plan, it has been conducting a similar program for a few years now with its “War on Costs.”

A spokesman for Pratt said the company plans to spend $5 million a year for the next three years on IRAD to find ways to produce the F135 engine more cheaply.

Companies using IRAD to find savings isn’t new. What’s “creative” with this deal, Martin said, is that the company doesn’t pocket the return. Those are given to the customer, and when the JPO has seen the savings proven, it will pay the corporate investment back with a “minor return.”

“This is a promising and very wise new approach,” said Richard Aboulafia, an analyst with the Teal Group. “The F-35 program has been characterized by a lack of understanding of commercial realities, both with DoD and with export customers. The contractors need to focus on the price tag, and to make it clear that they are partners in breaking out of the low-production-rate/high-unit-cost spiral.”

“It seems rather obvious that [Lockheed, BAE and Northrop] would want to cooperate on investing in cost reductions because they don’t want the F-35 program to be cut,” said Michael Blades, senior industry analyst with Frost & Sullivan. “A $170 million investment, just a little more than the cost of one F-35, is small compared to the risk of decreasing the total buy because of costs. Such a reduction could cause a domino effect with global buyers and reduce the overall potential F-35 buy.

“I think it is commonly accepted that the DoD is expecting industry to foot more of the bill for R&D,” Blades added. “This collaborative is proof of that acceptance.”

That both Lockheed and Northrop are taking part of this plan could have long-reaching implications. Lockheed, teamed with Boeing, is gearing up to go head-to-head with Northrop over the long-range strike bomber, the US Air Force’s next major acquisition program.

“We think this is a best practice that perhaps can be used” for other programs, Martin said.

The Air Force this week issued a request for proposal to corporate competitors; service officials have said they want to select a manufacturer by the spring.

If the “blueprint” works out, it is possible it could become a new way of doing large-scale aviation programs — a way for both sides to find savings amid tight budgets.

“I do expect more programs to engage in some sort of OEM-funded R&D increases,” said Blades, referring to original equipment manufacturers. “If you come to the table with a new program with a bid that includes some investment on the company’s part, it may have an advantage over competing bids. I think this will also lead to more strategic partnerships when bidding for significant programs so the risk can be spread across more than one contractor.”

Multiyear in View?

Bogdan indicated that another money-saving option could be a block buy procurement process with international partners.

“We want to be able to incentivize our partners by saying ‘Hey, you know you’re going to buy x number of airplanes, let’s figure out how we can lock you into that number of airplanes,’” he said. “That does great things for everybody.”

While providing a guaranteed, lower price for the country procuring the plane, it also gives stability to the F-35 program and helps drive up the number of planes in production, bringing costs down across the board. Bogdan has said about 80 percent of the costs on the program are related to quantity.

“It’s a win-win for everyone,” Bogdan said. “We will try to implement some of that over the next few years.”

Martin compared it to the foreign military sale block-buy procurement process for the C-130.

“The general has been talking to the countries,” Martin said. “I think it will take a little bit of time to put it together. The nations that like to buy that way really need us to get there quickly.”

Bogdan acknowledged that the program could never have done a block-buy process years ago, and cited it as proof of increasing health for the jet.

“You couldn’t do this eight years ago. Goodness gracious, we didn’t even know if the program was going to survive eight years ago,” he said. “We are in a position now, risk-wise on this program … it is a much better risk proposition for everybody, including industry, to start opening their pocket books.”

Bogdan then jumped to point out that the program has largely been on track with the schedule laid out following its re-baseline in 2010.

“This program has had a tragic past. We all know that. We know it’s a billion dollars over development cost. We know it’s many years late of the initial baseline in 2001. Get over it,” he said. “It’s not the same program it was in 2001, or 2008. It’s been re-baselined. We have been on this baseline for four years, and we are holding to it.”

Bogdan, Martin and Pratt’s head of military engines, Bennett Crosswell, said they expect to be done with negotiations soon on the next group of jets and engines.

Disappointment at RIAT

Although the announcement was hailed as a major cost-saver for taxpayers, that was small consolation for the aviation fans and potential customers who had hoped to see the F-35B fly here at RIAT or at the Farnborough International Airshow, which begins July 14.

As of presstime on July 11, program officials were holding out hope that the plane could make it for the last day of RIAT on July 13. But that window was is increasingly shrinking, leaving an appearance later this week at Farnborough still in play.

The planes were grounded July 3 due to the ongoing investigation into a fire that damaged an F-35A model on June 23.

“I can assure you that the US Marine Corps and the UK are sitting perched waiting at [Naval Air Station Patuxent River, Maryland] for any word that they can move their airplanes,” Bogdan said on July 10. “If that clearance does come, they will move. They will sit there until we exhaust the very last window of opportunity to fly either here or at Farnborough.”

It takes roughly 24 hours from the moment the planes are given the all-clear to when they could be ready to present at a show. Although the deployment of the planes is handled by the Marines, Lockheed Martin has funded a team of maintainers, as well as spare parts, which have been standing by at Fairford in case the jet makes an appearance.

Bogdan acknowledged the importance of the plane making it to the air shows in his speech, noting “it is important for the international community to see this is not a paper airplane.”

Martin added that there is operational value for the group of F-35Bs to make the trip, even if for just one day at Farnborough.

“This is a deployment,” Martin said. “This is the US Marine Corps deploying their aircraft overseas, testing spare parts, testing [the plane’s logistics system] remotely, testing their flying profiles and how to do a long-duration flight. This has value in it which far outreaches the air show … they’re going to learn a lot.”

“Lockheed seems to be optimistic about flying an F-35 at Farnborough,” Blades said. “They will make every effort because that is an important showcase especially for potential [foreign military sales] deals. Not flying may not reduce sales, but flying could increase them. Seeing a system that advanced perform to specs would be impressive to buyers on the fence about choosing between Gripens, F/A-18s, Eurofighters or F-35s.” ■

Email: amehta@defensenews.com.

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