The report, for which the Committee heard testimony from the Ministry of Defence as well as prime contractor Lockheed Martin and partner BAE Systems, was decided after a series of articles by The Times newspaper reporting “a number of serious allegations, including claims that the F-35 "is way over budget, unreliable, full of software glitches and potentially unsafe".
Arguably, this is the first time that any parliament has carried out an inquiry on the F-35 program on the basis of press reports detailing the program’s problems and failings.
The Times, partly based on our analysis of Lot 9 unit costs, reported that the UK will pay “around £130–155 million per F-35B fighter produced this year, once modifications and retrofits have been taken into account,” or about double the $131 million claimed by Lockheed Martin.
As we have long maintained, and have written in many detailed articles over the last 15 years, the lack of transparency over F-35 program costs is extraordinary, and the level of misinformation or omission simply breathtaking.
This is aptly illustrated by a paragraph in the report, which notes that “Both Lockheed Martin and the MoD insisted that the programme was within budget. However, neither could provide firm costings.”
A new level of obfuscation
But, in responding to this enquiry, the Ministry of Defence broke new ground in developing the obfuscation that habitually surrounds the F-35 program. It basically told Parliament that it doesn’t know what it is getting for the money it is paying, and that it will know the cost of the F-35s it is buying only in 20 years, when it’s paid all of bills.
Unsurprisingly, the committee found this “wholly unsatisfactory.”
To hammer the point home, Committee Chairman Julian Lewis writes in today’s Times that “Where the committee is less convinced, however, is in relation to the MoD’s openness (or lack of it) on the costs of the programme. Despite repeated requests, the MoD has failed to provide us with the full cost of each aircraft, once spares, upgrades and retrofits are included, or its estimates of the total cost of the programme. This failure to disclose cost estimates, and the suggestion that we would have to wait until the end of the programme in the mid-2030s to discover the full cost of the programme, is completely unacceptable and risks undermining public confidence in the F-35 programme.”
MoD counterattack peters out
Lewis’ criticism is borne out by several passages of the report’s section devoted to analyzing the program’s “Hidden Costs?” and which also details MoD’s feeble attempts to discredit the committee’s line of enquiry.
“MoD Permanent Secretary Stephen Lovegrove attacked [The Times’] estimate as an ‘extraordinarily crude and misleading calculation’ [but] the Department was also unable to provide details of the total cost of the F-35 procurement programme.”
In fact, Lovegrove “suggest[ed] instead that we must wait until the mid-2030s (when all 138 F-35 have been procured) to be able to work out a full unit cost for each aircraft, once spares and upgrades are included.”
The Committee also reports that “We asked the Minister for Defence Procurement and her MoD colleagues several times about the cost to the UK taxpayer of the F-35 programme. Pressed on the total cost per aircraft, once support and spares are included, Mrs Baldwin and her colleagues did not answer directly.”
“MoD’s failure to provide adequate cost estimates, either on an overall programme basis or on a per-aircraft basis.…..amounts to an open-ended financial commitment which can be quantified only in retrospect.”
“It is simply not acceptable for the Ministry of Defence to refuse to disclose to Parliament and the public its estimates for the total cost of the programme.”
Additional costs of over 7.5% + spares, IT and equipment
An ancillary benefit of the report is that it provides some insight into the hidden costs of the F-35 program.
First of all, Lockheed’s Babione clearly told the committee that the “unit recurring flyaway (URF) costs” used by the company in its public statements do not include any country specific requirements, retrofits, software updates, spares or logistical support.
He also told the committee that “procurement of spares and logistics, including those supplied by Lockheed Martin, is conducted separately from the production of the aircraft. He said these contracts are “aggregated over a longer period of time” which makes it more difficult to generate a cost per unit,” the report states.
More interestingly, in a follow-up written statement to the committee, Babione “suggested that the UK is spending at least 3% of the original URF costs on aircraft modification,” but for unexplained reasons “could not provide figures on engine and weapons system modification.”
Lockheed Martin also expects the UK to “pay approximately 4.5% of the total cost to develop and integrate new capabilities into the F-35”.
Finally, for spare parts, support equipment to operate the aircraft, equipment to train pilots and maintainers, and Information Technology systems that enable aircraft operation and sustainment, “Customers deal directly with the JPO for these items,” the cost of which is not included in Lockheed’s aircraft cost estimates.
Consequently, any unit price claimed for the F-35 must be increased at the very least by 3% for aircraft modifications, another 4.5% for improvements, and an unidentified amount for necessary spares and support equipment, to arrive at a reasonable unit cost estimate. Operating costs, which represent between two-thirds and three-quarters of total F-35 costs, are extra.
Click here for the full report (42 PDF pages) on the UK Parliament website.
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