Lockheed’s F-35 Poised for More Production, Pentagon Says

Lockheed Martin Corp. (LMT)’s F-35 fighter is poised for expanded production in fiscal 2015, according to the Pentagon’s top weapons buyer.

“While risks remain, progress on the F-35 program at this point has been adequate to support a decision to budget for increased rates,” Frank Kendall, under secretary for acquisition, said in a decision memo to the Air Force and Navy secretaries dated yesterday.

Kendall said that the award of annual contracts for increased quantities is contingent on improvements in software development, reliability -- which he said “is not growing at an acceptable rate” -- and available funding, as the Pentagon faces billions of dollars in automatic cuts known as sequestration.

“The magnitude of the increase will be determined” by Defense Secretary Chuck Hagel as the Pentagon “finalizes its fiscal 2015 budget,” according to the two-page Kendall memo circulating inside the Navy and Air Force. “Progress in the development program has been close to plan,” Kendall said.

Kendall’s decision memo outlines the findings from a Defense Acquisition Board program review on Oct. 21. While the memo isn’t a guarantee that quantities will be increased in annual contracts, it indicates Kendall is confident that money can be budgeted in the five-year fiscal 2015 plan to be released next year.

The Pentagon’s current five-year plan calls for increasing F-35 production to 42 jets in fiscal 2015, which begins Oct. 1, 2014, from 29 this year and in fiscal 2013. The rate would increase to 62 in 2016, 76 in 2017 and 100 in 2018, according to internal Pentagon budget documents. The new plan will be released next year with the Pentagon’s fiscal 2015 budget plan.

Increasing Costs

The Pentagon’s projected price tag of $391.2 billion for a fleet of 2,443 aircraft is a 68 percent increase from the projection in 2001, as measured in current dollars. The number of aircraft also is 409 fewer than called for in the original program.

The rising costs and troubles in building the plane at the same time that it’s being developed have led to criticism in Congress. This year, lawmakers, the Government Accountability Office and the Pentagon test office have said the aircraft is making progress in flight tests and in stabilizing production.

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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