The Pentagon and Lockheed Martin have agreed to a handshake deal for the latest two lots of F-35 airframes, and based on cost projections the program for the first time is targeting a unit price under $100 million, excluding engines and retrofits.

But this goal in the seventh production run (next year) covers only the airframe. A breakdown of additional prices such as the F135 engine and projected retrofits reveals a far higher cost. Meanwhile, the Pentagon is preparing to consider whether the single-engine, stealthy aircraft is ready for full-rate production, as officials target a total unit cost at peak production of $80-90 million.

The deal covers 36 aircraft in low-rate, initial production (LRIP) 6 and another 35 in LRIP 7. Defense spending cuts handed down by sequestration in the fiscal 2013 budget did not ultimately affect the number of aircraft in LRIP 6, as once thought.

The total contract and per-unit price figures will not be released until the contract is signed, says Michael Rein, a Lockheed Martin spokesman.

However, the company says the unit cost of each variant will be reduced by about 4% lot over lot. Based on pricing targets for LRIP 5, per-unit goals can be projected for the new LRIP 6 and 7 jets.

The F-35A airframe, designed for conventional U.S. Air Force takeoff and landing (and the version with greatest appeal to international partners) is projected to cost $100.8 million in LRIP 6 and $96.8 million in LRIP 7. This is the first time since the program began production that the projected unit cost will fall below $100 million.

These prices do not include engines; the government contracts separately with Pratt & Whitney to purchase the F135. Pratt will not release its unit price, but a defense official says each F-35A engine costs roughly $14 million, and each F-35B engine is about $38 million. Pratt and the Pentagon are still negotiating terms for LRIP 6 engines, a company spokesman says.

These estimates exclude the cost of retrofits to airframes that are required as a result of discoveries in flight testing that is running in parallel with LRIPs 6 and 7.

Based on a May report, the Pentagon estimates that airframes in LRIP 6 and 7 would require another $7.4 million for retrofits. The government and Lockheed have agreed to split the amount of those known retrofits at the time of contract signature. Any new problems that crop up in flight trials will require full payment by the government.

Adding up known engine costs, retrofit estimates and the target-unit projections, an F-35A in LRIP 6 would cost the U.S. government roughly $118.5 million and in LRIP 7, $114.5 million.

It remains to be seen whether Lockheed Martin will manage to fabricate the airframes on the cost targets laid out in LRIPs 6 and 7. As of March, program officials say, the airframes in LRIP 4 are being produced at about 7% higher-than-targeted price. However, the risk structure of the agreement protects the government from liability for such an overrun in the two newest lots.

This is the first deal signed between the Pentagon and Lockheed Martin since a massive leadership shift at the company put Marillyn Hewson at the helm. Then-CEO-in-waiting Christopher Kubasik abruptly exited late last year after details emerged about his extramarital affair with a company employee. His prospective second-in-command, Hewson, ascended. Kubasik was widely thought to have adhered to former CEO Robert Stevens's approach to F-35 negotiations; hashing out LRIP 5 took over a year. Hewson, by contrast, seems to have a more collaborative way of bargaining.

And since she has come onboard there have been changes in Fort Worth, Lockheed Martin Aeronautics' headquarters. The former sector president, Larry Lawson, left the company to become CEO of Spirit AeroSystems, and Orlando Carvalho, formerly the vice president overseeing the F-35, took his place. Lorraine Martin, formerly the F-35 deputy, now oversees the massive program.

LRIPs 6 and 7 will be the first contract for which Lockheed Martin assumes all responsibility for exceeding the target cost of the airframes, Rein says.

LRIP 6 includes 18 F-35As for USAF, six F-35Bs for the Marine Corps and seven F-35Cs for the Navy. Also included are three F-35As for Italy and two for Australia.

LRIP 7 includes 19 F-35As for USAF, six F-35Bs for the Marine Corps and four F-35Cs for the Navy. Also covered are another three F-35As for Italy, two F-35As for Norway and 1 F-35B for the U.K.

Projected F-35 LRIP 6 and 7 Costs (U.S.$millions)
Variant and Lot Size Target Airframe Cost Estimated Retrofit Cost* Estimated Engine Cost Total Estimated Aircraft Cost
F-35A LRIP 5 (32) $105 $10 $14 $124
LRIP 6 (36) 100.8 7.4 14 118.5
LRIP 7 (35) 96.8 7.4 14 114.5
F-35B LRIP 5 113 10 38 156
LRIP 6 108.5 7.4 38 150.2
LRIP 7 104.2 7.4 38 145.9
F-35C LRIP 5 125 10 14 144
LRIP 6 120 7.4 14 137.7
LRIP 7 115.2 7.4 14 132.9