Latest Lot 10 Contract Implies F-35 Costs Dropped 25% In 3 Weeks

Lockheed Martin Corp., Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded a $7,189,297,142 undefinitized not-to-exceed modification to the previously awarded low-rate initial production Lot 10 F-35 Lightning II advance acquisition contract (N00019-15-C-0003).

This modification provides for the procurement of 90 aircraft, comprised of:
-- 76 F-35A aircraft for the Air Force (44), non-U.S. Department of Defense (DoD) participants (16), and Foreign Military Sales (FMS) customers (16);
-- 12 F-35B aircraft for the Marine Corps (9), and non-U.S. DoD participants (3); and
-- two F-35C aircraft for the Navy.

In addition, this modification provides for diminishing manufacturing and material shortages redesign and management; non-recurring engineering, changes to correct deficiencies resulting from concurrency between systems development and demonstration and production; and unique requirements for non-U.S. participants and FMS customers.

Work will be performed in Fort Worth, Texas (30 percent); El Segundo, California (25 percent); Warton, United Kingdom (20 percent); Orlando, Florida (10 percent); Nashua, New Hampshire (5 percent); Nagoya, Japan (5 percent); and Baltimore, Maryland (5 percent), and is expected to be completed in March 2020.

Fiscal 2016 aircraft procurement (Navy/Marine Corps and Air Force); and non-U.S. DoD participant and FMS funding in the amount of $1,280,306,832 are being obligated on this award, none of which will expire at the end of the current fiscal year.

This contract combines purchases for the Air Force ($3,397,703,267; 47.3%); Navy ($1,005,133,523; 13.9%); non-DoD participants ($1,507,557,938; 21.0%); and FMS customers ($1,278,902,414; 17.8%).

The Naval Air Systems Command, Patuxent River, Maryland, is the contracting activity.

(EDITOR’S NOTE: The above contract would have us believe that, in less than three weeks since Nov. 2, the Pentagon and Lockheed Martin have resolved their differences on the F-35 prices that had delayed award of the Lot 9 contract for two years.
When the Pentagon on Nov. 2 awarded the main Lot 9 contract, it used a “unilateral contract action” and forced Lockheed to accept its price after negotiations had become deadlocked.
As the Lot 10 but as the above contract returns to the standard contract form, it is clear that both sides have agreed the price this time around.
Such a speedy resolution strains belief.
But an even bigger surprise is that it would appear from this contract that, during those same three weeks, the F-35’s price has dropped 25%.
How can this be?
The main Lot 9 contract, awarded Nov. 2 but not yet made public, covers 57 F-35s and is worth $6.1 billion. This implies an average cost of $107 million per aircraft, not counting the engine, which is contracted separately.
The main Lot 10 contract released Nov 23 (above) funds 90 aircraft for $7.2 billion, or an average cost of $79.9 million, also without engine.
That is a drop of 25% in exactly 21 days. How credible can it be?
The probable answer is that there is no such drop, but that the intricate contracting agreements between the F-35 Joint Program Office and Lockheed Martin allow all sorts of bookkeeping liberties that muddy the waters and do not allow a precise calculation of costs, perhaps not unintentionally.
Finally, an ancillary observation: the US Navy continues to drag its feet on buying the F-35, and has this time ordered only two F-35Cs, compared to the US Air Force’s 44. The question again arises of whether the Navy in fact ever intends to deploy the F-35C.
We will return to the subject of F-35 contracts soon.)

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