The F-35 Joint Program Office (JPO) said that the price of the Low Rate Initial Production (LRIP) Lot 5 aircraft declined by 4 percent over the previous Lot 4 contract, initiating a long-expected decline in the cost of F-35 that, it says, will ultimately lead to a halving of current prices.
The JPO also released the final LRIP unit price for each of the three F-35 variants. These prices are:
-- $105 million for each of 22 F-35A Conventional Take-off and Landing (CTOL) aircraft for the US Air Force;
-- $125 million for each of seven F-35C Carrier Variant (CV) aircraft for the US Navy; and
-- $113 million for each of 3 F-35B Short Take-off Vertical Landing (STOVL) aircraft for the US Marine Corps.
These prices are expressed in BY12 dollars, and do not include the aircraft’s F-135 engine, which is procured separately.
The average unit cost of these three variants is $114.3 million, rising to $146.3 million when the cost of its engine is added. (See Table 2)
Lockheed Awarded $5.8 Billion for Lot 5
Given the degree to which the JPO prices continue to vary compared to the total value of the various LRIP lots, and to determine whether the source of the discrepancy could be identified, we analyzed all of the Lot 5 contracts that have been made public by the Department of Defense.
According to this research, Lockheed has been awarded ten contracts for LRIP Lot 5, for a total value of $5,876 million (see Table 1). When this is divided by the number of aircraft (32), the cost of each airplane averages $183.6 million, or double the JPO prices detailed above.
Furthermore, once the cost of the Pratt & Whitney F-135 engine is added, the cost of a complete Lot 5 aircraft increases to $223.03 million. (As the final cost of LRIP 5 engines has not been finalized, we have used the $39.4 million cost of LRIP 4 engines).
We readily acknowledge that this this is an imperfect way of estimating unit costs. However, dividing the total cost of a production batch by the number of aircraft it comprises is, however imperfect and approximate, the most comprehensive way of determining the price taxpayers actually end up paying. And this approach leaves no room for creative accounting.
1. F-35 LRIP Lot 5 complete aircraft costs
|7/6/2010||Long-lead items||$522.2m||for 22 F-35A +13 F-35B +7 F-35C (42 a/c)|
|12/8/2010||Long-lead items||$76m||Additional items & materials|
|9/27/2011||Sustainment||$187m||Engineering & support|
|9/12/2011||Production order||$4,012m||Lot 5 order reduced to 30 a/c (+ UK instrumentation)|
|27/12/2011||Non-recurring work||$485m||Special tooling & test equipment|
|13/04/2012||Production order||$258.8m||Adds 1 F-35A + 1 F-35C (total now 32 a/c)|
|6/04/2012||Recurring support||$111.6m||Training, maintenance, etc.|
|14/12/2012||Definitizes contract||$127.7m||For 32 aircraft|
|Airframe total||Airframe only cost||$5,876.4m||Average cost: $183.6m per aircraft without engine|
|12/28/2011||Production order||$1,122m||30 engines, no spares|
|Engine total||Engine only cost||$1,260.8m||Average cost: $39.4m per engine|
|Complete a/c||Airframe + engine||$7,137.2m||For 30 aircraft and 30 engines|
|Average cost: $223.03m per aircraft with engine|
Source: DoD for data, defense-aerospace.com for presentation
Note: contract dates include hypertext links to contract announcement
Using the same methodology, we then worked out the total cost of the previous production batch, Lot 4. Lockheed was awarded 13 Lot 4 contracts, for a total value of $5,736.35 million. By dividing this amount by the 32 Lot 4 aircraft, the resulting average unit cost – without engine – comes to $179.2 million.
A comparison of average Lot 4 and Lot 5 unit prices (i.e., $179.2 million to $183.6 million), shows an increase of 2.5%, and not the 4% reduction claimed by JPO.
Asked to comment on the apparent discrepancy in unit costs, JPO spokesman Joe DellaVedova provided the per-variant costs quoted earlier, but did not elaborate on how they were calculated. He did not respond to follow-up questions.
DellaVedova added that “The agreement projects LRIP-5 aircraft to be approximately four percent lower than the cost of an LRIP-4 aircraft. This represents a positive continuing downward trend in aircraft prices lots,” but again provided no explanation of how these figures and percentages were arrived at.
The JPO also provided its estimate of the average cost for each variant over the life of the entire program, but did not say how these costs were computed. (see Table 2)
These estimates are:
-- $78.7 million for the F-35A version;
-- $106.4 million for the F-35B and
-- $87 million for the F-35C.
When averaged, the F-35 program unit cost projected by the JPO is $90.7 million.
2. Cost comparisons: LRIP 5 aircraft and program URF
Finally, the program office also provided current unit recurring fly-away (URF) prices for the 43 aircraft currently under contract (29 for the United States and 14 for foreign partners). These prices are $127 million for the F-35A, $164 million for the F-35B and $148 million for the F-35C, including their engines.
In other words, the JPO’s official line is that the program partners:
- will pay an average of $114.3 million for each of 32 LRIP 5 airframes (mean of the cost of three variants, as stated by JPO);
- increasing to $146.3 million with engines, and
- that it is confident that average prices will decline by 38% over the life of the program.
This 38% reduction is the drop JPO anticipates between its official average LRIP 5 cost (i.e., $146.3 million) and the average $90.7 million target cost it projects over the life of the program.
Given the way the program has evolved to date, the wide range of development problems that must be fixed, and the delay the program has accumulated there is little to justify JPO’s continued confidence in these figures.
Lockheed had no comment on LRIP 5 prices, and company F-35 spokeswoman Laurie A. Quincy referred questions to DellaVedova.
Lockheed’s Dec. 14 statement about the final LRIP 5 contract does not mention prices at all, and simply attributes the following comment “With the F-35 Low Rate Initial Production 5 (LRIP-5) contract finalized, we look forward to completing the build of these 5th generation aircraft and delivering them to our war fighters defending both the U.S. and our allies” to Orlando Carvalho, Lockheed Martin F-35 Program General Manager.
Interesting LRIP 5 contract provisions:
The following provisions included in the final LRIP 5 contract, and provided by the Joint Program Office, show that the Pentagon is gradually tightening the F-35 contract terms, so that Lockheed will notably pay financial penalties if its performance is lacking.
-- The per-variant unit prices listed above are for the air vehicle (excludes concurrency) and do not include the propulsion system. The LRIP-5 engine contract is currently being negotiated between the Government and Pratt & Whitney.
--The expected delivery schedule for LRIP-5 aircraft should begin in August 2013 and end by May 2014 with the contractor delivering about three aircraft a month.
-- Cost overruns:
This deal incrementally reduces the Government’s exposure to target cost overruns as compared to LRIP 4:
* Lockheed Martin will cover 55 percent in the event of an overrun, whereas in LRIP 4 the parties shared equally (50/50) any underrun or overrun.
* In the event cost overruns exceed 112 percent of the target cost, they will be covered fully by the contractor. The Government and Lockheed Martin share equally (50/50) any underruns from target cost.
* The LRIP-5 contract includes a concurrency clause that requires Lockheed Martin to share equally with the Government (50/50) for known aircraft retrofit requirements with no fee.
* Newly discovered concurrency changes will be added to the contract as engineering change proposals and will cause a renegotiation of the target cost of the aircraft; however, no profit will be permitted.