Lockheed Martin confident it will beat Pentagon’s F-35 cost projection

Lockheed Martin’s chief executive on Thursday expressed confidence his company will beat the Pentagon’s cost projections for the F-35 Joint Strike Fighter program. 

The F-35, the Pentagon’s largest and most expensive program to date, has undergone significant reshaping as a result of ballooning costs and development delays. 

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Lockheed, the nation’s biggest defense contractor, builds the F-35, which is envisioned to replace older aircraft for the Air Force, Navy and Marine Corps as well as international militaries. The cost of the program has risen to $382.4 billion, a 65 percent increase from the projected costs in 2002. 

Lockheed CEO Robert Stevens on Thursday pledged to keep the program on the right track and indicated the company would assume more risk for cost increases related to F-35 aircraft in early-stage production. 

“We are absolutely committed to getting this program right. We are determined to beat the government’s cost estimate, and that is not a statement of disrespect,” Stevens said at a briefing with reporters in Crystal City, Va. “We’ve had very candid conversations with all the leaders in the Department of Defense about our desire to improve on the cost-estimate basis that is out there today, and we intend to achieve that.” 

Stevens projected the average cost of an F-35 would be comparable to the latest versions of Boeing’s F-18 and Lockheed’s F-16 fighter jet. The most modern version of an F-16 costs about $60 million, according to Lockheed officials. 

The average cost of an F-35 could reach $60 million by 2016 to 2017, said Steve O’Bryan, Lockheed’s vice president of the F-35 program. That estimate comes with some caveats, however. 

It depends on the U.S. military and international partners ordering a healthy number of planes. The $60 million figure only applies to one variant of the plane, the conventional takeoff and landing (CTOL) aircraft, the largest batch and the cheapest variant of F-35s. The other variants, the short takeoff and vertical landing (STOVL) and the aircraft carrier variants, would be more expensive. The $60 million price tag is also calculated in 2010 dollars and would have to be adjusted for inflation. 

Pentagon officials told lawmakers earlier this year that the price tag for one F-35 has risen to between $80 million and $95 million per plane, calculated in 2002 constant dollars. In today’s dollars, one aircraft would cost an average of $112 million, according to Michael Sullivan, the director of the acquisition team at the Government Accountability Office. The price for one F-35 fighter jet in 2001 was estimated to be $50 million. 

O’Bryan stressed that Lockheed so far has been able to beat the government’s projections for the third batch of aircraft in early-stage production by 20 percent and is projecting it would come in more than 20 percent below the Pentagon’s estimate for the next batch, which is currently in negotiations.

Stevens said negotiations with the Pentagon over the fourth low-rate initial production lot will be completed in several weeks. Lockheed and Pentagon officials are discussing a contract that would be fixed-price plus incentives and would take effect two years earlier than planned, according to Stevens.

By agreeing to a fixed-price type of contract, Lockheed would assume much more risk if the cost increases, because the company would have to absorb those extra costs.

Stevens on Thursday also announced that his company would slash in half its presence at this summer’s Farnborough Air Show. Stevens himself will not attend the world-famous show. The move is part of being more cost-conscious at a time when the company’s largest customer, the Pentagon, is looking to trim its fat.

“We’re going to challenge every expense. We’re going to examine every priority. We’re going to support our customers to the fullest,” Stevens said. “We’re going to enrich our partnerships, but we’re going to do it in an increasingly cost-conscious way. That’s what led us to this decision.”