Analysis: Lower F-35 Operating Costs Should Be Taken with A Pinch of Salt
 
(Source: defense-aerospace.com; published Aug. 22, 2013)
 
(By Giovanni de Briganti)
 
 
PARIS --- Reports that the Pentagon has sharply reduced its estimates of F-35 operating costs have downplayed the way this reduction was achieved. On closer analysis, it appears that these lower estimates are based on improbably favorable assumptions that suggest this reduction could just as easily be reversed.

Furthermore, as long-standing F-35 plans are also being twisted and stretched, notably by the Marine Corps, to show the aircraft is affordable, the headline 22% reduction in costs is probably much less credible than it appears.

This latest, lower estimate was sent to the Senate Armed Services Committee by the F-35 program director, US Air Force Lt. Gen. Christopher Bogdan, and was first reported Aug. 21 by Bloomberg.

Pentagon uses same, effective tactic

The Pentagon successfully used a similar tactic earlier this year, when its much-publicized 2012 Selected Acquisition Report said F-35 production costs had dropped, for the first time, by $4.5 billion. At the time, this generated a great volume of favorable media reports.

However, mostly overlooked was the fact that the SAR itself said the reduction was “due primarily to decreases in the prime contractor and subcontractor labor rates (-$7,853.3 million).” In other words, lower costs were obtained simply by lowering labor rates, a perilous assumption to make for a 50-year program.

This time around, the F-35 Joint Program Office reduced operations and maintenance costs by 22% by again using “revised assumptions about how [the aircraft] will be used and maintained,” a DoD official told Reuters. The wire service also reported that “industry and military officials [argued] that many of the [previous] assumptions were outdated and off base” to justify the revision.

But, at this point in time, no-one can say that the new assumptions are more or less credible than previous ones. This is no doubt why the Pentagon’s Cost Assessment and Program Evaluation (CAPE) office has not seen fit to revise its own cost estimate, which remains pegged at $1.1 trillion as before.

Strange Arguments Justify Lower Costs

Both Bloomberg and Reuters reports (see links at bottom) cite some intriguing details that cast legitimate doubts on the credibility of the 22% cost reduction.

First of all, as rightly noted by Bloomberg, operating costs mainly include fuel, repairs and spare parts. Since it is impossible to predict how fuel and manpower costs will evolve over the F-35’s 55-year career, it is vacuous to claim, today, that total operating costs have declined.

The Marine Corps has also radically changed its F-35 operations to claim lower costs. Lt. Gen. Robert Schmidle, deputy Marine Corps commandant for aviation, told Reuters that the Marines would fly their F-35Bs “in STOVL mode just 10 percent of the time, far less often than the 80 percent rate factored into the initial estimates.”

This is a stunning statement, and one that contradicts all the arguments that the Marine Corps has used to justify the F-35B STOVL variant. It also shows the lengths the Corps has to go to show it can afford to buy and operate the F-35.

Marines Plan to Reduce STOVL, MRO Manning

If STOVL is needed only 10% of the time, then it is, at best, a secondary capability, and is no longer enough to justify the F-35B variant’s exorbitant cost, both in terms of acquisition ($153 million, without engine, in LRIP Lot 5) and of operations ($41,000 per flight hour).

Furthermore, if STOVL operations are limited to 10% of flight activities, it is hard to see how Marine pilots will ever gain enough experience to fly STOVL missions from small, unprepared landing zones on the beachhead – the main, if not only, reason the Marine Corps says the F-35B is indispensable.

Reuters also quotes Schmidle as saying that manning levels assumed in the initial estimates were also higher than needed in practice.

However, the Marine Corps has no realistic experience in operating the F-35: as of July 10, it had received only 23 F-35Bs, according to Lockheed’s latest status report, so it is questionable that it can determine appropriate long-term manning levels from such a small fleet, especially as Lockheed personnel continue to support the aircraft.

Schmidle also told Reuters that the Marines would “trim maintenance costs by doing up to 90 percent of the work in house, rather than farming it out to contractors.” He added that “similar efforts had resulted in big savings on the V-22, the Marines' tilt-rotor aircraft.”

Again, this statement flies in the face of previous claims that private contractors cost less than military personnel, and that the Pentagon (and other militaries, especially in Europe, would save huge amounts by outsourcing work to the private sector.

It also implies that the Pentagon has been wasting billions of dollars on contractor services when, if Schmidle is to be believed, military personnel can do the same job at lower cost.

Foreign Implications and Convenient Timing

It probably also is unwelcome news for Italy, which so far has spent a billion euros to set up a Final Assembly and Check-Out facility, which also is to maintain its own, Dutch and possibly other European F-35s. If the Marines can do 90% of the job at lower cost, then so can European air forces. This means Italy’s investment is essentially useless, and the business plan for the facility, and for Alenia’s future, is no longer valid. But the 1 billion has been spent.

Finally, the timing of the cost reductions is especially convenient for Lockheed Martin, whose bit to sell the F-35 to South Korea was rebuffed last week as far too expensive. Thanks to the lower estimate, Reuters reported that “U.S. officials said Seoul could decide to restart the competition and ask for new bids.”

Bogdan sent his letter announcing the lower cost estimates to the Senate panel right in the middle of the Congressional recess, which runs Aug. 2 to Sept. 9, and during the slow summer news season. This could well be another coincidence, but it could also have been arranged to guarantee maximum headlines.

Given all of the above, and to coin a phrase, reports of lower F-35 costs appear to have been greatly exaggerated.


Click on the links below for the reports mentioned in this story:

Bloomberg: F-35 Support Costs Fall 22%, Pentagon Manager Estimates

Reuters: Pentagon Cuts F-35 Operating Estimate Below $1 Trillion: Source

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