Lockheed F-35 May Stay Protected, Pentagon’s Buyer Says

Lockheed Martin Corp. (LMT)’s F-35 fighter may be protected from major cuts even if $52 billion in automatic reductions are imposed on the defense budget in the year starting Oct. 1, according to the Pentagon’s chief weapons buyer.

“The F-35 is a very high priority,” Frank Kendall, undersecretary for acquisition, said in an interview. “Could we protect it completely? I’m not sure. We have to look at all the trade-offs. We may address some of those decisions in the fall, but right now, we are committed to the program. That hasn’t changed.”

The F-35 is the Pentagon’s costliest weapon system, with an estimated price tag of $391.2 billion for a fleet of 2,443 aircraft, up 68 percent from the projection in 2001, as measured in current dollars, according to the Pentagon. Kendall cited the weapon’s importance to defense strategy and the need for increased production to reduce the per-plane cost as reasons to give it special protection from mandatory spending cuts called sequestration.

Kendall said he didn’t think the Pentagon’s commitment to the F-35 will change “under any of the budgets we are looking at, including sequestration.”

The sequestration process will require an estimated $52 billion in reductions from planned spending during fiscal 2014. Defense Secretary Chuck Hagel said last week that if the cuts aren’t averted the Pentagon will do its best to “seek management efficiencies and controls on compensation growth before making cuts to force structure, modernization and readiness.”

Even so, Hagel said in a letter to lawmakers, “funding for hundreds of program line-items, large and small, would have to be cut significantly. We would be forced to buy fewer ships, planes, ground vehicles, satellites and other weapons.”

Falling Rain

While defense contractors largely escaped cuts under $37 billion in sequestration this year, Hagel said that next year the Pentagon “would be forced to sharply reduce funding” by as much as 20 percent for procurement, research and development and military construction.

“There were people who thought that when sequestration was triggered it would arrive like a hurricane or a thunderstorm,” Kendall said in the interview on July 12. “It arrived more like a rain that just started to fall and just keeps falling and the water’s rising.

‘‘We are just accumulating damage,’’ the severity of which ‘‘at some point will become self-evident,’’ he said. ‘‘I don’t know that we’re there yet, but it certainly keeps building.”

Asked what effect sequestration may have in 2014 on plans to increase F-35 production to 42 in 2015 from 29 this year and next year, Kendall said he hasn’t yet studied the issue closely and hopes a decision to “ramp up” can be made later this year.

Production Rate

“That’s the key to eventually getting the costs down,” he said. “So I need to get the production rate up. We are way below the capacity of the factory” in Fort Worth, Texas.

The Pentagon moved to protect Bethesda, Maryland-based Lockheed’s F-35 from effects of sequestration this year, locking in contracts that obligated funds before the cuts took effect on March 1.

While protecting high-priority programs “is the right way to look at defense cuts in general,” the Pentagon needs “to specify how they will make offsetting cuts elsewhere, and they have not done that,” Todd Harrison, a budget analyst with the nonpartisan Center for Strategic and Budgetary Assessments in Washington, said in an e-mail.

‘Damage-Limitation Problem’

Through Sept. 30, Pentagon managers are “essentially treating sequestration as a damage-limitation problem” because the military services are taking reductions “pretty much everywhere,” Kendall said.

“They are managing it with the assumption this will be fixed eventually,” he said. That would require President Barack Obama and Congress to revive moribund efforts to agree on an alternative plan for deficit reduction.

If the Pentagon must find $52 billion more to cut “we’re at a very different place” than the $9.8 billion impact on weapons and research this year, Kendall said.

“We’d have to look hard at canceling programs” while restructuring others. Kendall said.

“I’m looking carefully at all the things I’m making commitments on right now,” Kendall said. “In selected cases I am delaying some of them,” he said, without elaboration.

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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