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Lockheed Needs Pressure to Pare F-35 Costs, Levin Says

The Pentagon and Congress should press Lockheed Martin Corp. (LMT) to reduce soaring costs of its F-35 Joint Strike Fighter, the chairman of the U.S. Senate Armed Services Committee said.

“We have to keep the pressure on,” Senator Carl Levin, a Michigan Democrat, said in an interview. “We’ve got to have contracts which are fixed-priced. We have to make reductions.”

The F-35 contract awarded to Lockheed in 2001 called for three variants of an affordable stealth fighter for the Air Force, Navy and Marine Corps. The Pentagon’s most expensive weapons program, its total cost is estimated at $395.7 billion, a 70 percent increase from a 2001 estimate equal to $233 billion in current dollars, according to the latest Pentagon Selected Acquisition Report.

The first four contracts for 63 jets are exceeding their combined target cost by $1 billion, according to congressional auditors. The U.S. Government Accountability Office said in a review released on June 14 that the F-35 will require $12.7 billion a year on average through 2037. That’s up from $9.1 billion requested for fiscal 2013.

The program’s projected “lifecycle cost” -- including development since 1994, production of 2,443 jets and 55 years of support -- increased to $1.51 trillion from $1.38 trillion in 2010, Pentagon officials told reporters March 30.

Asked whether Pentagon efforts to control the costs were moving in the right direction, Levin said. “I’ve got plenty of concerns. Some trends are positive and some trends are not.”

“We’ve got to have a backup, which is what the F-18 is all about,” Levin said of the current fighter built by Boeing Co. (BA)

Lockheed’s Stevens

Asked today about the senator’s comments, Robert Stevens, Lockheed’s chairman and chief executive officer, said, “We agree with Senator Levin. We want to get this program right.”

The Navy has included funds through 2017 to buy 51 additional F-18s, in part as a hedge against further delays in the 78 F-35s it wants to acquire in those years.

For the fifth F-35 production contract that’s still under negotiation, Bethesda, Maryland-based Lockheed has agreed for the first time to share costs to fix deficiencies discovered during flight tests that overlap the plane’s development.

This approach, called concurrent development, is supposed to save time. Instead, it added to costs, according to Frank Kendall, the Pentagon’s undersecretary for acquisition.

‘Acquisition Malpractice’

“Putting the F-35 into production years before the first flight test was acquisition malpractice,” Kendall said in a Feb. 6 industry presentation, according to Air Force magazine. “It should not have been done. But we did it.”

The F-35 program proceeded with the “optimistic prediction we were good enough at modeling and simulation that we would not find problems in flight test,” Kendall said. “That was wrong, and now we are paying the price.”

Stevens said in an interview today that “every aircraft program with which we have familiarity has a degree of concurrency.”

“If you think of a non-concurrent program, how exactly would that work?” he said. “It’s already 15 or 20 years to develop an aircraft with concurrency. Doing a step-by-step process without any overlap between design and production would mean that the design would have some technological obsolescence as it heads into production.”

Such an airplane would also “cost a fortune,” Stevens said at a Lockheed conference for reporters in Arlington, Virginia.

Greater Share

As part of the sixth contract for the F-35, the Pentagon plans to craft provisions forcing Lockheed to absorb a greater share of cost overruns than in the prior five contracts.

Additionally, six of the 31 aircraft in the sixth contract won’t be awarded until Lockheed meets at least five criteria, including successful review this year of the latest software release, Vice Admiral David Venlet told the Senate Armed Services Committee’s airpower panel in May.

Levin also cited as a positive sign the Pentagon’s request in its fiscal 2013 budget request for 29 F-35s, 13 fewer than previously planned.

Performance Mixed

The GAO found the F-35 program’s performance in 2011 “was mixed as the program achieved 6 of 11 important objectives. Developmental flight testing gained momentum and is now about 21 percent complete with the most challenging tasks still ahead.”

Lockheed’s manufacturing process “is still absorbing a higher than expected number of engineering changes resulting from flight testing, changes which are expected to persist at elevated levels into 2019, making it difficult to achieve efficient production rates,” the GAO wrote.

Lockheed is reviewing the report, spokeswoman Laurie Quincy said in an e-mail.

The company “made outstanding progress” during 2011 flight test, training and production, “and so far in 2012, we are about 20 percent ahead of our flight test plan,” she said.

“We understand the concerns of the Department of Defense and continue to make forward progress in addressing these concerns,” she said. “The team remains focused on performance.”

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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