UK to Spend £2.7 Billion for First F-35 Squadron (Update 1)
(Source: compiled by Defense-Aerospace.com; published Jan 15, 2015)
PARIS --- The Royal Air Force will spend over £2.1 billion to pay for its first squadron of Lockheed F-35, according to the UK National Audit Office (NAO).

The NAO’s latest report also reveals that the UK’s investment in the F-35 program, pegged at £2,873 million in the NAO’s report on FY2013, nearly doubled to £5,622 million in this latest report, which covers the financial year from April 2013 to March 2014.

This huge jump in the cost of the F-35 is revealed in a footnote in the NAO’s report on “MoD Major Programs,” issued Jan 14, 2015. The footnote says that “the approved cost of the [program’s] Demonstration and Manufacture Phase has risen from £2,873 million in our 2013 report to £5,622 million in this report [for 2014]. This is because the 2013 amount only covers the first four demonstrator aircraft, but the 2014 number covers the first squadron of aircraft.

“The figure of £5,622 million quoted in our report covers the cost of 4 demonstrator aircraft plus the cost of the first squadron,” an NAO spokesman told Defense-Aerospace.com on Jan 15. He declined to elaborate, however, saying “These figures are provided by the Ministry of Defence, and are not endorsed by the NAO” which merely uses them to evaluate the coherence of long-term spending plans.

An MoD spokesperson confirmed Jan 16 the year-on-year cost increase revealed in the footnote, but said the £5622 million figure “is the approved value of all Lightning II Business Cases up to and including Main Gate 4,” and not only Main Gate 4.

In the NAO's report, various accounting changes reduced the approved cost of £5,622 million by £586 million, for a net total cost of £2,163 million for the first squadron. (£5,622m - £586m = £5,036m - £2,873m = £2,163m)

This is the table, with the footnote highlighted, as published by NAO on page 62 of its report:




The £2,163 million price tag includes 14 aircraft as well as everything the squadron needs to operate them, including all associated support equipment and capital spares, but neither their weapons nor their fuel. (Other Royal Air Force fast jet squadrons comprise 12 aircraft).

This works out to an average cost of £154.5 million ($234.9 million) per aircraft.

The NAO’s report states that the new, £5,622 million cost appears in the Lightning II Main Gate 4 Business Case (MG4 BC) and covers “procurement of the aircraft for the first UK Squadron with all associated support equipment and capital spares.”

MG4 BC also funds “the procurement of Freedom of Action facilities, and all associated support contracts, which will enable the transition of the aircraft from the US to the UK, delivery of Initial Operating Capability from RAF Marham in December 2018, and permit initial First of Class Flying Trials to take place aboard the new Queen Elizabeth Class Carrier in the same year.”

The MoD spokesperson added that the MG4 Business Case also includes for the support contracts to cover the period 2015 to 2020.

The NAO report adds that MG4 “was endorsed by the Investment Approvals Committee in October 2013 and obtained HM Treasury approval in January 2014.”

The cost of the Main Gate 4 Business Case has not been made public before.

The NAO’s main report covers the F-35 program both in its main section (see p. 62 sq.) and in the Appendix volume (pp. 97-118).

LIGHTNING II

The Joint Strike Fighter has been selected as the aircraft to meet the Joint Combat Aircraft requirement, and provides the UK with a fifth-generation air system. Joint Combat Aircraft will provide the UK with an expeditionary multi-role fighter with the ability to enter and operate within contested airspace. Using secure links it will operate as a Combat Intelligence, Surveillance, Target Acquisition and Reconnaissance platform providing intelligence to troops on the ground, and when required will be able to employ a range of sophisticated weaponry, even through adverse weather.

In-year Progress

The UK took delivery of its third F-35B aircraft (BK-3), which transferred to Eglin Air Force Base, Florida, on 25 June 2013. BK-3 joined the US Marine Corps’ Marine Fighter Attack Training Squadron 501 to support core pilot and maintainer training. An order was placed for a fourth UK F-35B aircraft in September 2013.

The Lightning II Main Gate 4 Business Case (MG4 BC) was endorsed by the Investment Approvals Committee in October 2013 and obtained HM Treasury approval in January 2014. The Lightning II MG4 BC sought approval to procure the aircraft for the first UK Squadron with all associated support equipment and capital spares.

The Business Case also approved the procurement of Freedom of Action facilities, and all associated support contracts, which will enable the transition of the aircraft from the US to the UK, delivery of Initial Operating Capability from RAF Marham in December 2018, and permit initial First of Class Flying Trials to take place aboard the new Queen Elizabeth Class Carrier in the same year.


The MG4 BC approval provides for the support contracts to cover the period 2015 to 2020.

Main Gate 4 set the operational In-Service Date for the UK Lightning II aircraft as 31 December 2018. During the MPR14 reporting period, the first 3 British operational pilots completed their training to enable them to fly the F-35 and are now flying regularly from Eglin Air Force Base, Florida.

Appendix Commentary

The NAO’s main report is supported by “project summary sheets” that scrutinize each major program in some detail.

In the case of the F-35, this year’s project summary sheets include 22 pages on the F-35 program (see pp 96-118. Scroll down; page numbers are those printed on the report).
These summary sheets reveal some surprising accounting assumptions that the NAO received from MoD in the past year. We have selected a few:



-- NAO reports that during the financial year the MoD’s cost of its F-35 plans decreased by a total of £201 million, thanks to very opportune bookkeeping adjustments (“exchange rate adjustment” of -£257 million and accounting adjustments for -£135 million).
These gains more than compensated for a £176 million rise in costs.
However, these exchange rate savings were booked at a time when the pound sterling’s value was dropping relative to the dollar, which should have boosted costs.

-- As of March 2014, the UK had spent £2240 million on the F-35 program, but only £135 million during the year covered by the NAO report.

-- December 2018 remains the planned date for F-35 Initial Operating Capability (IOC) in UK service.

-- Full Operating Capability (FOC) is presently envisioned for April 2023, but the detailed road map of the transition won’t be decided until Main Gate 5, after 2017.

-- In terms of performance, NAO reports (Section D, page 111) that 5 out of 8 performance targets against Defence Lines of Development (DLOD) are “forecast to be met (with risks)”

-- In terms of Key Performance Measures (KPM), the NAO found that two are “forecast to be met (with risks)”: combat radius and logistic footprint.

(ends)


Story history:
1. Jan 16, 2015: The UK Ministry of Defence provided an initial response, which has been incorporated into the updated story above:
-- The UK’s first F-35 squadron comprises 14 aircraft, not 12;
-- The £5622 million figure is the approved value of all Lightning II Business Cases up to and including Main Gate 4, not just Main Gate 4.

More updates will be added as necessary

-ends-




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