Lockheed F-35 Still Facing Turbulence Despite Gains: GAO

Lockheed Martin Corp. (LMT)’s F-35 fighter still faces major budget challenges although it achieved seven of 10 key management goals last year, congressional auditors said today.

In its latest annual assessment of the Pentagon’s most expensive program, the U.S. Government Accountability Office said the “current outlook is improved but long-term affordability is a major concern.”

The program’s current plan requires an average of $12.6 billion a year through 2037, in contrast to this year’s request for $9.1 billion, “with more austere budgets looming,” the GAO said.

The $12.6 billion annual requirement is “an unprecedented demand on the defense procurement budget” that “will be difficult in a period of declining or flat defense budgets and competition with other ‘big ticket items,’” such as the KC-46 tanker made by Chicago-based Boeing Co. (BA), the GAO said.

The agency said in its report that the F-35’s “manufacturing and supply processes are also improving -- indications such as factory throughput, labor efficiency and quality measures are all positive.”

Still, “going forward, ensuring affordability -- the ability to acquire the aircraft in quantity” that keeps the per-plane price down -- “is of paramount concern,” it said.

The total cost of the $395.7 billion program has increased by 70 percent since October 2001, when Bethesda, Maryland-based Lockheed Martin beat Boeing for the contract.

“Overall, the F-35 Joint Strike Fighter program is moving in the right direction after a long, expensive and arduous learning period, the GAO said. ‘‘It still has tremendous challenges ahead.’’

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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