Lockheed Martin expected to increase F-35 production rates significantly in the coming years.

Pentagon Issues F-35 Contract Adjustment to Lockheed

May 24, 2017
$137.8-million modification to an earlier, “cost-plus-incentive-fee” contract for 57 aircraft Over 200 jets produced to dat Lot 11 to be assigned later this year Cost-control efforts

The U.S. Dept. of Defense issued a $137.8-million contract modification to Lockheed Martin Corp. in connection with an earlier, “cost-plus-incentive-fee contract” for low-rate initial production of the F-35 Joint Strike Fighter. The new award applies to Lot 9 of the production program, and combines purchases for aircraft to be delivered to the U.S. Air Force (80% of the award), U.S. Marine Corps (16.4%), and U.S. Navy (3.6%.)

Lockheed is the lead contractor for the F-35, a series of a stealth-enabled, single-engine aircraft developed as a common platform for combat and air defense. Some jets are in use already by the USAF and USMC, and future deliveries will supply aircraft to the U.S. Navy, the U.K. Royal Air Force, and defense ministries in several NATO and other Allied nations. After a protracted development, production of the fighters has been underway for several years, but extraordinary costs have drawn criticism from opponents and backers. 

Lot 9 of the program consists of 57 aircraft, for which the Pentagon set a price of $6.1 billion after contentious negotiations failed to arrive at an agreed total value.

The F-35 program has already proceeded to Lot 10, awarded late last year, with Lot 11 expected to be assigned this year. As such, it’s possible that the cost modification awarded for Lot 9 represents a settlement between DoD and Lockheed, which made known its dissatisfaction with the unilateral contract awarded on Lot 9 in 2016.  

Lockheed and other major contractors (BAE Systems, Northrup Grumman) committed to implement cost-cutting strategies and to meet new expense limits as early as 2014, and Lockheed has frequently restated its progress on these fronts. The program has over 1,300 suppliers however, making negotiations on prices difficult and time-consuming.

The program has already built over 230 aircraft, and in February Lockheed and the Dept. of Defense agreed to terms on the tenth Low Rate Initial Production contract for the F-35 — $8.2 billion for 90 aircraft, 55 for the U.S. defense forces and 35 for other nations (Australia, Italy, Norway, Turkey, and U.K.) Overall, the latest contract reportedly cut $728 million overall from the previous (Lot 9) award.

The unit costs still are significantly above the $85-million level that Lockheed has set as a goal. In Lot 10, each F-35A jet is project to cost $94.6 million (-7.3% compared to Lot 9); the F-35Bs are pegged at $122.8 million apiece (-6.7% from Lot 9); and each F-35C is projected at $121.8 million (7.9% reduction from Lot 9.)

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