Pentagon Takes Control of F-35 Cost-Cutting Push

The Pentagon has taken over an effort to cut the cost of the F-35 combat jet, after rejecting plans proposed by Lockheed Martin Corp. and its partners, as it tries to make a program estimated to cost $400 billion more affordable.

The U.S. plans to buy more than 2,400 of the jets over the next three decades to replace much of its combat fleet. But after years of delays and overruns drew flak from lawmakers and Donald Trump, the military has been pressing suppliers to reduce the cost of producing and flying the F-35.

The aircraft's sticker price has fallen in recent sales to the U.S. and other countries, in part because of a contractor-led effort launched in 2014 called the Blueprint for Affordability that invested $170 million to make the jets cheaper to produce.

Lockheed and the Pentagon announced plans in July 2016 to continue the program, with the company and partners Northrop Grumman Corp. and BAE Systems PLC investing another $170 million over three years in cost-saving measures. The contractors said the initial plan saved $230 million and could be worth $4 billion over the life of the program.

Some military chiefs, however, have expressed concern about the pace and source of savings. In January, Defense Secretary Jim Mattis also ordered a review of the high-profile program.

The Pentagon opted this summer not to press ahead with the extension and instead last month gave Maryland-based Lockheed a $60 million contract to pursue further efficiency measures, with more oversight of how the money was spent.

"Using a contract vehicle instead of an agreement with industry provides the government with greater insights into the cost savings efforts," said the F-35 program office, led since May by Navy Rear Adm. Mat Winter.

The F-35 leadership say they want more of the cost-saving effort directed at smaller suppliers that haven't been pressured enough. A quarter of the initial $60 million is earmarked for projects outside the main three contractors. The Pentagon said it may boost its investment to $170 million if the initial efforts yield enough savings.

Pratt & Whitney, a unit of United Technologies Corp. that makes the engines for the F-35, is continuing a separate effort to reduce costs.

The Pentagon has also yet to approve a plan announced last year for the three main companies to spend $250 million over five years to shave 10% off the running costs of the F-35 fleet over its lifetime, which are estimated to be more than $1.1 trillion for the U.S. aircraft. Allies plan to buy another 500 jets.

That huge bill led the Pentagon to consult with logistics experts at companies including Wal-Mart Stores Inc. to find potential savings. President Trump, who frequently criticized the F-35 on the campaign trail and before taking office, also held multiple direct discussions with Lockheed Martin Chief Executive Marillyn Hewson.

The company has pledged to aggressively drive down the costs of the F-35 program, which is central to its growth and already delivers almost a quarter of its sales.

Lockheed said the new arrangement won't affect those efforts, even as the efficiency drive has been hampered by the Air Force cutting its planned annual procurement to around 60 jets from 80.

"The government's decision to fund this next phase of cost-reduction initiatives is a testament to their confidence in our ability to deliver the cost savings, based on the success of the original Blueprint for Affordability projects," said Jeff Babione, Lockheed's F-35 general manager.

The latest cost-saving push is part of a plan to reduce the price of the F-35A model -- the plane used by the U.S. Air Force and most overseas allies -- to around $80 million by 2020, after adjusting for inflation. Officials estimated that 75% of the target is tied to efficiencies gained from higher output, with the balance coming from efforts like the Blueprint for Affordability program.

Lockheed is currently negotiating a deal with the Pentagon for an 11th batch of jets, which it hopes to conclude by the end of the year. The last sale, agreed on in January, priced the F-35A at $94.6 million each, a 7.3% drop from the previous batch. That price was broadly in line with the Pentagon's price target before Mr. Trump took aim at the program.

However, critics say the claimed prices don't capture the full cost of the jets once additional modifications, added later, are included.

"There's very little transparency about it," said Dan Grazier, of the Project on Government Oversight, a Washington, D.C.-based watchdog.

(END) Dow Jones Newswires

October 08, 2017 08:14 ET (12:14 GMT)