Lockheed Martin and the F-35 Program Office have agreed on terms to purchase the next two batches of F-35 warplanes.
Fleeting Deal, Spiking Costs: The F-35's Next Leg
Lockheed Martin and the F-35 Joint Program Office (JPO) have reached an informal agreement for the production of the next two lots of the stealth fighter, a deal that's been delayed over a year, leaving Lockheed to shell out millions to keep production moving. The agreement, still in negotiations, sees about 300 aircraft up for grabs in Lots 18 and 19.
Usual practices have been tossed out the window, as the JPO kept mum on the price per aircraft for Lot 18 and 19, bucking the trend of revealing such details for previous contracts lasting three lots. Royally sticking to privacy, those juicy cost figures remain under wraps.
Lot 20, however, will be danced a separate dance, as it could debut under a long-planned multiyear contract.
In greenback terms, the projected cost for the F-35 under Lots 18 and 19? A significant hike. The reasons behind this bump? Rising inflation, increased complexity, and diminishing annual purchases. But no official numbers have been dished out just yet.
Long-lead funding for Lot 18 dried up in the third quarter of the year, forcing Lockheed to tighten their belt and pay for production with their own funds. Fear not, they claim it's all for the greater good, ensuring lower-tier suppliers stay afloat and avoiding supply chain chaos. The hefty expense tally? A whopping $700 million in the third quarter alone.
Company CEO Jim Taiclet put it bluntly in a recent earnings call - production continuity was "essential" to thwart potential supply chain breakdowns.
Negotiations on Lot 18 and 19 have been extended by the year-long hold on F-35 deliveries (commencing August 2023 and ending July 2024). The delay was due to Tech Refresh 3 upgrade specifics that hadn't been fully developed and tested, preventing Defense Contract Management Agency from rubber-stamping deliveries.
To add salt to the wound, the JPO withheld $7 million per jet during the delivery hold, and Lockheed forfeited a cool $60 million in award fees. But all's well that ends well, as the delivery hold was lifted in July when the upgraded TR-3 software was deemed stable and suitable for release. Over a hundred aircraft had accumulated, waiting for their delivery ticket.
Now, about 20 F-35s are released each month, a combination of stored and newly produced jets. The projected number of F-35s to be delivered in 2024? A range of 90-110, an upgrade from a previous estimate of 75-110. Starting in 2025, the company aims to churn out more than 156 F-35s yearly.
Fresh from the Fort Worth, Texas production line, the aircraft now sport Tech Refresh 3 and are eyeing over 80 enhancements in the upcoming Block 4 version of the jet.
Though prices haven't been officially unveiled, insiders say the F-35's unit cost in Lots 18 and 19 will tip the scales, following a steady decline in previous years. Air Force F-35A versions are predicted to clock in around $81 million each, but the varying costs for other variants remain enigmatic.
With internet sales steaming ahead, Lockheed and the F-35's popularity remains undiminished. The recent agreement on Romania's purchase of 32 F-35s marks the fighter's 20th country fan club.
The F-35's Flight Path Wrestles with Soaring Costs
Inflation, complexity, and reduced annual purchases contribute to a surge in F-35 costs under Lots 18 and 19, despite the JPO and Lockheed's continued silence on specific unit costs.
Sources suggest increased costs for F-35As, the Air Force's variant, to around $81 million each. Economies of scale diminish as purchasing quantities are reduced, exacerbating the cost hike.
Finalized contracts will bring a clearer picture to overall unit costs. Amid a rustle of feathers in the industry and supply chains, the F-35 soldiers on.
The ongoing cost surge for the F-35, as seen in Lots 18 and 19, is attributed to factors such as inflation, complexity, and reduced annual purchases.It's speculated that the Air Force's F-35A variant might cost around $81 million per unit in these lots.The finalized contracts will provide a more precise view of the overall unit costs, offering much-needed clarity in the industry and supply chains.
