Lower costs, international buyers key to F-35’s future

This is a critical year for the F-35 Joint Strike Fighter program. Already the most expensive military program ever, the number of all-weather, stealthy combat aircraft the Pentagon can buy each year will be determined by the cost per unit. And that, according to a recent analysis, will depend primarily upon orders from international buyers.

“The costs have been going down since 2013,” said Chris Taylor, CEO of the market research firm Govini. “We’re thinking Lockheed will get down to $80 million per aircraft.” That price is projected for units sold in 2020, and is even lower than Lockheed Martin’s target of $85 million per plane.

The price of each plane has been falling since 2013, thanks to a learning curve in manufacturing increased volumes of parts.

“Whenever you undertake a project of this magnitude, you tend to get smarter every day. So that, combined with certain orders, we can predict the unit costs, and those two factors combined alone can help us predict a lower cost,” Taylor told Federal Drive with Tom Temin.

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A just-released report from Govini indicates that as the program moves from development to full-scale production, the F-35 could become cost-competitive with the latest F-16s and F-18s by the early 2020s.

The F-35 is the second 5th-generation fighter aircraft ever produced, bringing stealth capabilities to the Navy and Marine Corps for the first time. The multi-role aircraft is meant to replace the Air Force’s F-16 and A-10, as well as the Marine Corps’ AV-8B Harrier. While the F-22 is still the reigning air superiority fighter in existence, the F-35 is designed to be more capable in an air-to-ground role.

There are three variants of the aircraft. The F-35A is a conventional take-off and landing version. The F-35B is the short take-off and vertical landing fighter favored by the Marine Corps. The F-35C is the Navy variant for aircraft carriers. Each has its own price. Currently, the F-35A costs $94 million each, the F-35B costs $123 million and the F-35C runs $122 million.

As of FY 2018, the Pentagon plans to acquire a total of 2,443 aircraft over the life of the program. International sales to NATO partners and other foreign buyers could push that number to 3,100 through 2035. But shrinking defense budgets in Europe are causing some concern, and some initial partner countries — including the United Kingdom, Norway, the Netherlands, Thailand and Israel — have threatened to take their business elsewhere over concerns the F-35’s design goals were too ambitious.

“There have been large order placements,” said Taylor. “I think as we get more certainty around the conclusion of some of the challenges [in manufacturing], we’ll see more international customers committing to the full buy that they would like.”

As Taylor suggests, solving a host of technological issues with the plane is going to be key to meeting cost projections and sales goals. The F-35 was supposed to complete its development and demonstration phase by now, but problems with the airframe and engine reliability have slowed progress toward testing the plane’s combat capability.

The fighter’s advanced cyber and electronic warfare systems are what make the plane a game-changer. But those programs that are the brains behind those systems have also run into problems.

“Right now, it’s really a software challenge,“ said Taylor. “Let’s make no mistake about it. This is the most complicated aircraft that we’ve created for our services. It requires a lot of expertise. It requires lots of teamwork. And Lockheed, for as much as the F-35 has been celebrated and maligned, they have gotten the costs down to where they need to be and will settle.”

Taylor said he hoped going forward, people will root their arguments over the costs of the plane in the facts of today, and not yesterday’s hopes and memories of what could be. While that has probably been true of every ground-breaking aircraft ever developed, one of the realities of today is the willingness of Congress to go along with funding the Pentagon’s wishes for the project.

The Trump administration’s 2018 spending proposal would remove $2 billion in procurement funding for the F-35, but would add almost $1 billion to the research and development function for the aircraft. Both proposals likely mirror Pentagon wishes to solve and the fighter’s technology issues. Congress may or may not go along.

“There are other things that need to be settled from a research and development perspective before we can ramp up fully the procurement piece of this,” said Taylor. “I think we’re going to see all the aircraft procured. I think the timeline might shift a little to the right.”

For Taylor, the key is moving the plane toward full production and out of the small batch phase that will bring international buyers on board. “At the end of the day, we’re really waiting to see what the international economic order quantity will be, because that will really allow us to lock in prices going forward.”