ALEXANDRIA, Va. – Good Evening, Drifters
Gotta say, it’s nice to be back.
I know I’ve always short-changed aviation in my coverage. I’ve done a few things I’m proud of in that realm, but it is certainly not the lion’s share of what I cover. Part of it is that my colleague Val Insinna does an incomparable job covering aviation, so I don’t have to cover it too often. But Val was in vacation in Japan this week so I got a chance to cover an F-35 hearing in the House Armed Services Readiness subcommittee to kind of backfill while she’s drinking Sapporo from vending machines, consuming exotic seafood and enjoying the fall colors.
Here’s my story from that hearing, and you should read it for background on this Drift:
The Pentagon plan to save the F-35’s logistics system hinges on whether Lockheed will relinquish data control
Now, normally intellectual property debates are what you engage with if you are looking for a slightly less exciting alternative to watching paint dry. But this one struck me as particularly interesting because of the implications for so many other programs throughout the Navy and the military more broadly.
Think about it: The surface Navy is trying to build a single combat system while navigating IP issues, that’s going to be a challenge. You can read more about that effort here:
The future of the US surface fleet: One combat system to rule them all
So, to help put these issues in context, I reached out to new Friend of The Drift Richard Aboulafia to discuss the issue.
F-35: A Drift Q&A
So, if you didn’t read my story (shame on you), the issue is essentially that the F-35 program was designed to give Lockheed sweeping control over design, fabrication, logistics and maintenance – almost every major aspect of the program. But then the butchers bill came in on how much it was going to cost to fly these things. All in, the cost per flight hour is about $35,000, which is batty. The F-18, according to NAVAIR earlier this year, costs about $18,000 per flight hour.
To curb costs, the military wants to get more control over the maintenance and logistics system, which currently runs through a Lockheed Martin system called the Autonomic Logistics Information System. The Pentagon wants to set up a government-controlled version of ALIS in an attempt to cut out the mark-ups and fees incurred by running all the logistics through Lockheed Martin. Problem is that Lockheed’s business model kind of depends on milking the sustainment of the jet for profits.
So, that’s the state of play. For more, I reached out to fighter expert Richard Aboulafia of The Teal Group to talk about the history of the program and what the Pentagon is trying to do.
The Drift: What’s the state of play between the Pentagon and Lockheed with this intellectual property debate, as you see it?
Richard Aboulafia: I think the issues fall under three broad headings: Money, readiness and sovereignty, the last of which affects the foreign users.
The first two are pretty large, especially given some of the innovation things going on inside the military. You've got the Navy experimenting with things like shipboard additive manufacturing and other innovative approaches to sustainability. So you've got this, almost archaic model of a highly centralized product support system that they just don't see being compatible with the more innovative ideas.
TD: The issues are created, essentially, by how this program was originally conceived, no?
RA: Yeah, everything about this plane was to maximize economic efficiency. Not necessarily low cost, but efficiency. That means relatively low inventory, centralized distribution portal: It harkens back to this accountants' dream aircraft vision of the F-35. You know, one plane that serves everybody; centralized distribution for all the parts. "No one will need their own inventory, that's old thinking."
And it was brilliant if you are an accountant, circa 1994 and you had post-Cold War thinking: How do you make do with less but still come up with innovative technology. And it wasn't completely stupid, right? It's just that times change.
TD: Is there precedent for this kind of thing?
RA: Ha! No.
TD: How does the military go about putting the genie back in the bottle? Does Lockheed have any incentive to help them with this or are they more incentivized to fight them tooth and nail to hold on to as much of F-35 as they possibly can?
RA: Yeah that's just a great question. And I suspect there are some lawyers out there looking very closely at the contract details. Becuase typically the way things work is that the profit model depends on higher profit margins for sustainment. And that's just the nature of the beast. And I'm sure whatever they've negotiated, low-rate initial production contracts of the past, they've looked at that issue very closely.
And, of course, you've got the issue that's kind of inherent is that a lot of these parts come from suppliers, and typically Lockheed will take a cut of that through the ALIS system. That's the way it works with all sustainment packages. But cost is an issue and readiness rates are an issues. Clearly, judging from the news yesterday, the Pentagon is mightily unhappy with readiness rates.
Meanwhile, there really are new ways forward: Either with direct contractor relationships or, when you own the intellectual property, you can either make it yourself or put the contractor on notice that it is now being competed either in-house or externally. And that's a powerful tool for reducing sustainment costs.
TD: My understanding is that back in the day they didn't have the acquisition experience in-house, the way contractors did. Do you think the military has that now or is this a way of trying to force the system to get more experience by moving it more in house?
RA: Absolutely I think it's the second. They don't have the resources to administer the equivalent of ALIS, not even a significant part of it. But they want that capability and they want to be able to compete with the ability to create this in house.
We all should be mindful that he era of 30 percent margins on spares might not be forever. If the military thinks it can compete directly with in-house capabilities or with direct relationships with contractors, they should. This is why it is in their interest to play up these issues with readiness: They can use this as a talking point -- perhaps even a legal talking point -- to say, "Look, you're not living up to your part of the bargain or to our satisfaction, therefore we are going to take back the IP and perhaps compete with direct contractor relationships or perhaps in-house replication."
TD: Thanks, Richard!
RA: Good talking to you, David.