PARIS --- Norway did not obtain a firm price from Lockheed Martin for the Joint Strike Fighter, and the price it was quoted will change substantially before the contract is signed in 2014, Norwegian government and industry officials say.
Price information provided by these officials paints a quite different picture from that provided by initial media reports, and illustrates many apparent inconsistencies.
For example, the $2.57 billion figure widely quoted as the cost of the 48 aircraft is wrong because it is based on the wrong exchange rate. Maj. Jarle Ramskjaer, head of information for the Norway’s Project Future Combat Aircraft Capability office, told defense-aerospace.com Dec. 2 that Lockheed Martin’s price is based on a January 2008 exchange rate.
Using this rate (5.5 Norwegian kroner to the dollar), the JSF’s 18 billion kroner cost works out to $3.27 billion, or $68.12 million per aircraft, substantially higher than the $54 million (wrongly based on Nov. 2008 exchange rates) unit price that was widely reported.
Asked to clarify how Norway had computed the JSF price, Ramskjaer said in a Dec. 5 e-mail that “Conversion between NOK and USD is somewhat more complex than multiplying with the exchange rate. The net present value is then derivated as follows: First, we periodize expenses according to the payment plan and adjust for the escalation indices. Then we create a “currency future” based on the money marked interest rates in the two currencies, as advised by the Norwegian Ministry of Finance. Those “currency futures” are then used for each period, converting foreign currencies to NOK. Last, we discount with a factor to get real time yearly cost.”
Additionally, Norway has calculated that the life-cycle cost for 48 JSF will total 145 billion Norwegian kroner (or $26.3 billion at January 2008 exchange rates) over 30 years, Ramskjaer said. This is also substantially higher than previously reported.
The $3.27 billion price tag is also incomplete. It covers “48 fly-away aircraft (Unit Recurring Flyaway, or URF, price) including Alternate Mission Equipment (AME) but not weapons or spares,” Ramskjaer said. In addition, the agreement with Lockheed Martin includes “an escalation clause to update the price at the delivery of the aircraft (when payments are due). We have based our estimates on historical development of the indices, and future predictions”, he added.
“Cost information provided to Norway in response to a Request for Binding information in April 2008 was a ‘budgetary estimate’ in 2008 US dollars,” Lockheed Martin JSF spokesman John Kent said in a Dec. 4 e-mail. The cost “includes aircraft Unit Recurring Fly-away cost plus Ancillary Mission Equipment, e.g., fuel tanks, weapon pylons, safety pins, weapons racks, etc.”
When these factors are added to the basic price, Norway will end up paying substantially more for its 48 JSFs. And, as the price is quoted in dollars, currency fluctuations over the next six years will substantially affect the final price in Norwegian kroner.
“We do not understand how the Norwegians came to the figures that they presented,” Lasse Jansson, a spokesman for Gripen International, said in a Dec. 5 e-mail. He added that officials from Gripen parent company Saab AB and the Swedish Defence Matériel Agency, FMV, had been debriefed by Norwegian officials on Dec. 4, and that “we are now trying to sort out if what we got out of that meeting made things [any] clearer to us.”
Norway has made provisions for other cost variations, such as “future growth (material and labor) indices, currency terms, net present value of the future investment etc, all which has been calculated according to Ministry of Finance directions,” Ramskjaer said.
Given these uncertainties regarding prices, and the fact that the contract will not be signed until 2014, today's Norwegian JSF price figures are pretty meaningless. It is thus difficult to understand how Norway’s Parliament can usefully debate the proposed JSF acquisition during the debate it has scheduled for Dec. 19.
Other prospective JSF customers are no better informed regarding JSF prices. Asked whether he was “any clearer about the unit cost of a Joint Strike Fighter” than during a previous hearing in January 2008, General Sir Kevin O'Donoghue, Britain’s Chief of Defence Materiel, told the House of Commons Defence Committee on November 25, 2008 that “No, I do not think I am, am I?”
Another apparent inconsistency is that Norway’s basic $68.12 million unit price tag is substantially lower than the price the US Air Force expects to pay for the F-35s it plans to order in FY 2013, one year before Norway expects to sign its contract.
According to USAF FY2009 budget documents (page 43), the US Air Force’s 48 F-35s planned for FY2013 will cost $4.336 billion, or $90.3 million per aircraft.
When advance procurement costs ($468.8 million) and initial spares ($372.7 million) are added, the USAF’s total bill for the 48 aircraft increases to $ 5.177 billion, or $107.8 million per aircraft, about 57% more than the URF price offered to Norway.
Ramskjaer declined to comment on the price differential with the USAF order, but said that “on a general basis we can say that the learning curve could have an effect on the acquisition cost (low rate initial production vs. mass production). It all depends when the aircraft is ordered, and which block/batch they will [originate] from.” Lockheed’s John Kent referred questions on this subject to the US government JSF Program Office.
Thus, contractual price information will not be refined until the contract is signed in 2014, and many factors can change substantially over those six years. Ramskjaer says, for example, that Norway did not receive, nor did it expect, a firm price at this stage, and that contractual prices, escalation clauses and penalty clauses for late delivery “will be addressed in the  contract.”