A hand-shake agreement with US government negotiators slashes the cost of each F-35A ordered in the latest annual lot to $94.6 million, but the Lockheed Martin programme’s goal to drop the price to $85 million in three years is in jeopardy unless the Defense department invokes a package of special acquisition tools, says Lockheed chief financial officer Bruce Tanner.
The F-35 joint programme office and Lockheed have said for years that a long-sought, three-year block buy that would begin in FY2018 would be a key ingredient in reaching the $85 million unit recurring flyaway cost target a year later.
In remarks on 8 February at the Cowen Aerospace/Defense and Industrials Conference, Tanner took that approach a step further, saying the $85 million price target, including the Pratt & Whitney engine, is now impossible to achieve in the absence of one or some combination of another round of Blueprint for Affordability cost reductions in the manufacturing system, a block buy and an economic ordering quantity purchase.
“As we look at it now,” Tanner says, “one of those or combination of those are required to get to the $85 million.”
Since 2014, Lockheed has unveiled two rounds of Blueprint for Affordability initiatives with pledged investments of up to $340 million to lower unit recurring flyaway costs.
Since the F-35 remains in the low-rate initial production through FY2019, the programme is legally prohibited from using a multi-year procurement authority, which allows US government agencies to award a single contract spanning multiple years rather than an annual lots. Instead, the F-35 has pursued approval of a “block buy”, which seeks bulk discounts by offering industry an upfront commitment of purchases over multiple years, but usually without cancellation fees.
Tanner’s remarks come less than a week after the F-35 programme announced reaching a preliminary agreement on the 10th lot of low-rate initial production. The Lot 10 deal was originally scheduled to be awarded in FY2016, which ended on 30 September. But negotiations stalled until December, when then-president-elect Donald Trump personally intervened, threatening to switch orders for the F-35 to the Boeing F/A-18E/F Super Hornet unless Lockheed dramatically lowered prices.
On 3 February, the White House announced a “hand-shake” deal with Lockheed, claiming a $728 million savings. That included a $696.4 million savings by comparing the unit recurring flyaway costs of the 90 F-35s acquired in Lot 10 with the 57 jets purchased in Lot 9. The remaining $33.6 million in savings came from ancillary and support equipment, such as spares, according to Lockheed.
Lockheed, however, remains unsatisfied with the pricing of F-35s in Lot 9, which the JPO imposed unilaterally last November after negotiations dragged on for more than a year, Tanner says. Lockheed reserves the right to appeal the Lot 9 prices in the US Court of Federal Claims, unless the JPO agrees to unspecified “considerations”, he adds.
Meanwhile, Lockheed has already started negotiations with the JPO over the Lot 11 contract, which is expected to lead to a signed contract by the end of the year, Tanner says.
“We’d like to think we could [Lot] 11 done in a sooner fashion than we’ve done it previously,” he says.
