Lockheed F-35 Overruns Top $1 Billion, Government Auditor Finds

Lockheed Martin Corp. (LMT)’s first 63 F-35 fighter jets are exceeding their combined target cost by $1 billion, showing the Pentagon’s costliest program lacks a reliable design and efficient manufacturing, according to U.S. congressional auditors.

The Pentagon is absorbing $672 million and Lockheed Martin the remaining $328 million in added costs for the aircraft in the first four production contracts, the Government Accountability Office said in prepared testimony today for a House Armed Services Committee hearing on tactical aviation. The committee is conducting the first oversight hearing on the F-35 Joint Strike Fighter for the fiscal 2013 budget.

“The long-stated intent that the Joint Strike Fighter would deliver an affordable, highly common fifth-generation aircraft that could be acquired in large numbers could be in question,” Michael Sullivan, the GAO’s director of acquisition management, said in the statement.

The testimony previews the GAO’s annual report on the Defense Department’s most costly weapons program, which is to be published next month. The GAO’s findings and the Pentagon’s annual test report, issued in January, are the two primary sources that lawmakers and the public have for assessing the military’s and Lockheed Martin claims for the F-35.

The reports are also closely watched by the program’s eight international partners, including Canada, the United Kingdom, Italy, Australia and Norway.

More Changes

“Engineering changes have been persisting at relatively high rates and additional changes will be needed as testing continues,” the GAO said today. “Manufacturing processes and performance indicators show some progress, but performance on the first low-initial production contracts has not been good.”

Frank Kendall, the Defense Department’s acting undersecretary for acquisition, cited software development and flight-test execution as the major issues in his prepared testimony for the hearing.

“We have observed past and current performance by industry on software that gives us concern,” Kendall said. “It is important that Lockheed Martin demonstrate performance and help us establish confidence that the F-35 is a stable and capable platform.”

At a time of reduced defense spending driven by budget- cutting measures, the F-35’s “projected annual funding needs are unprecedented, averaging more than $13 billion a year through 2035,” the GAO said.

The Pentagon “is still investing billions of dollars on hundreds of aircraft while testing has years to go,” according to the GAO.

Tankers and Bombers

The Air Force needs to budget $8 billion to $11 billion year from fiscal 2016 to 2035 as it also purchases new aerial- refueling tankers and new bombers, the GAO said.

The Pentagon’s current plan calls for spending $69 billion by the time flight-testing ends in 2017, buying 365 aircraft, or about 15 percent of the planned U.S. total of 2,443.

The agency report gives Lockheed Martin and the program credit for some testing and manufacturing process improvements in 2011.

“Even with the progress, most development flight-testing, including the most challenging, still lie ahead,” with only 21 percent of the almost 60,000 planned flight tests points accomplished through 2011, the agency said.

The $1 billion in cost increases for the first 63 aircraft is on top of $373 million the Pentagon already has incurred for corrections of deficiencies discovered in development testing.

Overlapping Efforts

The program continues to overlap manufacturing, development and flight tests, known as concurrency.

The overruns, likely additional concurrency retrofitting costs and projected annual spending put at “major risk” the program’s “overall affordability,” the GAO said.

“The program’s strategic framework, laden with concurrency, has proved to be problematic and ultimately, a very costly approach,” according to the agency.

Kendall acknowledged the challenge of concurrent development. The Pentagon’s original 2001 program assumptions were based on “unfounded optimism,” he said.

The risks will “progressively decline,” he said in his testimony. “There is no known design issue that cannot be overcome by effective engineering,” Kendall said.

“There is much work still ahead but we believe we have put the program on sound footing,” he said. “Industry must understand that” the program “will not execute itself.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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