Lockheed Addressing F-35 ‘Development Risks,’ Congress Told

Lockheed Martin Corp. (LMT) and the U.S. Defense Department have begun a “risk management” program to keep the F-35 Joint Strike Fighter within budget and on schedule, U.S. defense officials told Congress today.

“We want it, but it has to be affordable,” Ashton Carter, the Pentagon’s top weapons buyer, told the Senate Armed Services committee. “At the moment in its projections, it’s not.”

Carter said the cost of an F-35 has increased to about $95 million apiece in 2002 dollars, up from an original estimate of $80 million. In today’s dollars, the planes would cost $133 million each, according to the Government Accountability Office. The Pentagon plans to buy more than 2,400.

“The four highest development risks” are the software, pilot controls, safely touching down with a full load on the vertical-landing version of the plane, and helmet-mounted displays, said Carter, who testified with Vice Admiral David Venlet, the F-35 program manager, and David Van Buren, the Air Force’s top weapons buyer.

The department has begun a “detailed risk-management process to address these,” Carter said.

At $382 billion, the F-35 fighter program is the Pentagon’s most expensive. This estimate is likely to increase after a Pentagon review scheduled next week provides updated information on the program’s status.

Costs Increasing

The first batch of 28 jets being made by Lockheed may be as much as 15 percent more expensive than the $6.43 billion estimate, Venlet said on May 2. The fiscal 2012 budget seeks $9.7 billion for the jet’s development.

“This committee has been a strong supporter of the Joint Strike Fighter from the beginning,” panel chairman Senator Carl Levin, a Michigan Democrat, said in his opening statement. “Nonetheless, people should not conclude that we will be willing to continue that kind of support without regard to increased costs.”

Arizona Senator John McCain, the committee’s senior Republican, said Lockheed Martin “has done an abysmal job in meeting the original contract’s objective” in the now $51 billion development phase that’s slipped another 13 months.

Carter and the Pentagon’s director of cost assessment and program evaluation, Christine Fox, said they also needed to cut the program’s estimated $1 trillion long-term maintenance and support costs.

Long-Term Costs

“We can’t afford to pay that much,” Carter said of the combined per-plane cost increase and maintenance and other support estimate.

Fox said the F-35’s estimated maintenance and support costs, while less than those of the F-22, the military’s other stealth fighter, are about 33 percent more than the older F-16s and F-18s it’s replacing.

Lockheed Martin Executive Vice President Tom Burbage in prepared testimony said the company “is attacking every element of cost within our operation, both direct and indirect.

‘‘We have invested over $1 billion in factory efficiencies and another $450 million in information system improvements.’’

The Pentagon has placed orders for four trial lots of the plane from Bethesda, Maryland-based Lockheed. The first three were cost-plus basis contracts and the fourth was a fixed-price one.

Lockheed has submitted a proposal for the fifth lot, which is currently under negotiation, the Pentagon officials told Congress today. Defense Secretary Robert Gates has put the jet’s short take-off, vertical-landing model on a two-year probation pending fixes.

‘High Confidence’

Venlet told the panel he had ‘‘high confidence’’ that the Marine Corps version would emerge successfully from the probation.

Engineers have redesigned components of the complex main propulsion system and auxiliary air inlet doors. Changes are required because of lift-fan clutch drag and driveshaft expansion, issues unique to the short-takeoff and vertical landing version, he said.

‘‘We have engineering solutions for each of those,’’ Venlet told reporters after the hearing. Still, ‘‘I don’t declare victory until I have tests that proves the design is good,’’ Venlet said.

Allies Buying

The U.S. has commitments from allies to buy as many as 500 jets, the officials said in their testimony today.

Israel placed an order in October for 19 jets valued at $2.75 billion and the Pentagon is exploring foreign sales beyond the eight current F-35 partner countries, the officials said.

During the last year, the program delivered the first four conventional take-off model jets to Edwards Air Force base in California, the officials said. Two short take-off models and one aircraft-carrier variant were delivered to the Naval Air Station Patuxent River in Maryland for testing, they said.

United Technologies Corp. (UTX)’s Pratt & Whitney unit, based in Hartford, Connecticut, which supplies the F-35 engines, was three weeks late in delivering the first seven in 2011, the defense officials said today.

One more engine will be delayed before Pratt catches up with the schedule, they said. The engine delays won’t affect the plane’s delivery dates, they said.

‘500 Percent’

Carter disagreed with Senator Scott Brown, Republican of Massachusetts, who said the engine’s cost had increased by 500 percent since 2008.

‘‘The 500 percent number is not correct,” Carter said. The engine cost has increased by a “factor of two in real terms over the decade.”

Gates has canceled an alternative engine to the F-35 being developed by General Electric Co. (GE) and Rolls-Royce Group Plc (RR/), and the Pentagon is in the process of terminating that contract. Fairfield, Connecticut-based General Electric has said it will continue developing the engine on its own.

Whatever GE does “is up to them,” Carter said and reiterated that continuing development of the second engine would have cost the Pentagon an additional $2.9 billion -- an amount that General Electric disputes.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net;

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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