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Reports that Initial F-35 Production Batch Costs Over Target Costs

by: Matthew Potter
July 13, 2011

Category: Boeing, Business Line, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, development program, Events, Federal Budget Process, Lockheed Martin, Military Aviation, production program, Restructuring, Services, U.S. Air Force, U.S. Marine Corps, U.S. Navy | RSS 2.0

Yesterday Senator John McCain (R-AZ) caused a stir by tweeting that the Pentagon had requested $264 million as part of a reprogramming as a “downpayment” on the cost overruns for the the first three production batches of the F-35 Joint Strike Fighter.

He also said that the total cost would be closer to $800 million. As with a many programs at the stage of the acquisition cycle Lockheed Martin’s (LMT) F-35 is in the government and contractor share cost increases beyond the target or ceiling price. Reportedly this cost increase applies to the first 28 aircraft ordered by the Defense Department.

The Defense Department and Joint Project Office have yet to confirm McCain’s information.

The F-35 is an advanced tactical aircraft being developed to replace F-16, F/A-18 and A/V-8A aircraft currently in service with the U.S. Air Force, Navy and Marine Corps as well as for many U.S. Allied nations. It is the largest defense acquisition program ever planned to date and has suffered from cost and schedule growth due to testing and development issues.

The production buy currently being planned will be the fourth batch and the largest. There has been frustration over the cost increases with the program by many in Congress and especially McCain. The Senate Armed Services Committee recently added to the 2012 Defense Authorization Bill specific language for the F-35 limiting the government’s exposure to cost overruns. The bill if it becomes law after conference with the House would require Lockheed to be responsible for all cost increases past the target price rather then the Government and it sharing in them.

McCain also attempted in Committee to add language that would have allowed the Government to terminate the program if cost increases for the next production lot exceeded ten percent. That vote failed in committee but by only one vote. This illustrates the concern many have for the increased costs the program is facing.

If the contract was cancelled the U.S. would be faced with buying more Boeing (BA) F/A-18 or non-U.S. aircraft or even re-starting the F-22 production line to meet the requirement while a new fighter program was started.

The chances of terminating the contract are low due to the amount of money already invested in it. A more likely scenario is reduced quantities or a longer production run due to cost and funding limitations.

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