Agreement Reached on Latest Production Order for Lockeed’s F-35 JSF

by: Matthew Potter
December 12, 2011

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

The Pentagon and Lockheed Martin (LMT) signed a deal on Friday for the latest production order for the F-35 Joint Strike Fighter (JSF). The F-35 is the newest combat aircraft for use by the U.S. Navy, Air Force and Marine Corps as well as many allied nations across the world. It will slowly begin replacing the Eighties’ generation F-16, F/A-18 and A/V-8A tactical aircraft.

The contract is worth about $4 billion and will buy 30 F-35 aircraft in the three variants being developed. This includes 21 Air Force Conventional / Take Off and Landing (CTOL), 6 carrier based aircraft and 3 Vertical Take Off and Landing (VTOL) versions for the Marines.

Last fiscal year advanced procurement was awarded in the amount of roughly $500 million last year. This was was for 38 aircraft but after negotiations and the price challenges the JSF program is facing only 30 ended up being bought in the full production contract.

Lockheed along with many other defense contractors is involved in complex discussions with the Defense Department as to how to apportion risk and its costs. The Government would like more transferred to the contractor and obviously the contractor would like to minimize that. In June the Senate tried to write language into the defense authorization bill requiring a fixed price contract for this production buy but this was resisted by both Lockheed and the DoD.

The JSF program while slowly ramping up production still has a lot of testing and development to go. Traditionally this has required a Cost Plus based contract as Lockheed cannot necessarily predict how much work needs to be done or its cost. The Government would assume most of the risk at this stage due to the immaturity of the aircraft and the potential for changes to requirements and configurations. The desire to transfer the risk to the contractor is motivated by saving money but it could drive up bids and costs as well as reduce competition and delay contract negotiations and awards.

The JSF has had its share of cost, schedule and testing troubles. It is moving a lot slower then originally intended and will cost more then planned. The need for a new aircraft, though, is great as the U.S. has an aging F-15, F-16, and F/A-18 fleet. Cancelling the JSF as some have discussed would just mean either a new, existing aircraft would have to be bought or another development program would be started. Without significant changes in requirements the cost would be the same, if not more, if this course was pursued.

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