The Pentagon is reducing the next buy of to 30 from 35 aircraft in order cover cost overruns incurred in earlier production lots, according to the Joint Program Office (JPO).
The Navy and Air Force have agreed to reduce their quantities in low-rate initial production (LRIP) Lot 5 to “pay for the bills,” says Joe Dellavedova, JPO spokesman. “Controlling costs is an absolute must.”
The government is responsible for paying $771 million in overruns for the 28 aircraft included in LRIP Lots 1-3, he adds. Of that total, roughly $136 million is outlined as “concurrency cost.” These are costs incurred to retrofit jets in early lots based on findings from the ongoing testing program. The overruns amount to roughly $27.5 million extra per aircraft if evenly applied to the 28-aircraft buy, $4.86 million of which is associated solely with concurrency cost.
In July, Dellavedova characterized the concurrency funding as needed “to modify early production aircraft to attain useful service life capabilities. F-35 concurrency is generating significant change that both perturbs the learning cost reduction and adds costs for modifying delivered jets.” He repeats that mantra in a recent statement.
Also in July, Dellavedova said that the teams led by Lockheed Martin and Pratt & Whitney would have their fees reduced by $283 million to pay for their portions of the overruns.
Cost progress has not yet been reported for the LRIP 4, which includes 31 aircraft (and a priced option).
Concurrency cost has recently become an issue of some debate between the Pentagon and Lockheed Martin. During a third-quarter earnings teleconference on Oct. 26, CEO Bob Stevens said the government is pushing for industry to share in these concurrency costs in future lots; until now, the government has picked up the tab. Stevens balked at the notion that the Pentagon wants to first negotiate the concurrency cost issue before releasing more funding for LRIP 5 work.
CFO Bruce Tanner says Lockheed Martin will face $150 million in cost exposure by year-end due to unpaid bills on LRIP 5. The bills now total $750 million and are projected at $1.2 billion by the end of the year, Stevens said.
Despite this dispute and the overruns, Dellavedova said the JPO remains confident in the company’s plans to “get the development program back on track” and is “pleased with signs of emerging stability in the manufacturing flow at Lockheed Martin.”
The U.S. estimates its cost for the F-35, including all three variants, to be $382 billion. It is joined by eight partner nations in the development programs, with still others interested in buying production aircraft in the future.