Lockheed, Pentagon claim they’re reining in F-35 sustainment costs

After years of criticism over sustainment costs of the F-35 fighter, Lockheed Martin and the Pentagon on Wednesday said they are seeing progress in driving down the bill, and they believe the trend will continue.

Lockheed and the F-35 Joint Program Office did not release the annual cost per tail in 2021 for the jet. But in a statement, JPO spokesman Chief Petty Officer Matthew Olay said the amount fell from numbers recorded in 2020.

According to a Government Accountability Office report, it cost the Air Force in 2020 about $7.8 million to fly one of its F-35As. That was nearly double the service’s $4.1 million goal.

One of the Navy’s F-35Cs, the aircraft carrier variant, cost $9.9 million to fly in 2020 — more than the $7.5 million goal. For a single Marine Corps F-35B, the short-takeoff-and-vertical-landing variant, the cost came to $9.1 million that year; and for one F-35C, the bill came to $7.9 million. The Corps’ cost goals for both variants are $6.8 million each.

Lawmakers, government auditors and watchdog groups have criticized the F-35 program for its steep sustainment costs and the difficulties involved in keeping it working. That July 2021 GAO report said if the F-35 program does not tame expenses as more fighters come online, annual cost overruns for the entire military could near $6 billion by 2036.

In a Wednesday briefing with reporters at Lockheed’s Arlington, Virginia, office, company officials said they are taking steps to bring down the cost of flying the F-35, some of which involve keeping spare parts on the aircraft longer to cut down on supply costs and maintenance efforts.

The business is already seeing results, the officials added, and they expect the progress to continue over the next few years.

Audrey Brady, Lockheed Martin’s vice president for F-35 sustainment, said more than 90% of parts on the F-35 are staying on the jet longer than predicted, which reduces cost per flight. “Increasing the mean flight hour between failure is absolutely a game changer,” Brady noted.

But the latest costs are not public. The JPO told Defense News that trends are available, but did not provide exact cost figures when asked.

Olay said the annual cost per tail — the metric the Air Force prefers to use instead of the cost per flying hour — dropped at the Defense Department level, as well as for all services and variants, when compared to 2012 figures. That year was when the F-35 was most recently re-baselined, a term for when the program reevaluates its cost and schedule estimates and sets new targets.

The JPO also expects the costs from both metrics to keep dropping through 2024, after which they will somewhat stabilize, Olay said.

In its briefing, Lockheed displayed a chart estimating that its own share of the F-35′s annual cost per tail dropped 37% between 2015 and 2021, and that its cost per flying hour dropped 50% over that period. The firm expects its share of those costs to continue decreasing by 2026. Lockheed would not provide that information in exact dollar figures, describing it as sensitive proprietary data, but it did say its share makes up roughly 40% of the overall cost.

Lockheed Martin has so far delivered more than 825 F-35s to the militaries of 15 nations, and the company expects that number to nearly double over the next five years.

Lockheed also said that newer F-35s are more reliable than older versions thanks to the maturation of design and production processes. A newer F-35 typically flies for 14 total hours before a failure occurs, whereas models produced during the early days of low-rate initial production tend to experience a failure after four to six flight hours.

Buying in bulk

In recent years, Lockheed Martin has focused on several areas to reduce costs, said Mike Aylward, director of the company’s F-35 sustainment strategy. One key approach: taking greater advantage of the economies of scale provided by its massive supply chain.

That involves combining the demands from various aspects of the F-35 program — such as production, sustainment and aircraft modification — in order to buy parts in bulk to yield savings, Aylward said.

Leveraging economies of scale for supply will be most crucial through the mid-2040s, he added, after which major modifications are expected to entirely conclude as F-35 production rapidly wind down.

“It really benefits our suppliers because they’re now able to proactively plan a single demand signal, which allows them to invest in the program,” he explained.

A year and a half ago, Lockheed began signing massive advance contracts with suppliers for five years of total demand. Instead of signing multiple piecemeal contracts with suppliers on an annual basis, Aylward said, those vendors can now better predict what the demand will be over half a decade.

This does present a risk to Lockheed, Aylward admitted, but it could also help improve the F-35′s affordability on procurements, sustainability and upgrades. Paying suppliers in advance for five years also allows volume discounts and locks in prices before inflation or other economic factors drive up costs, he said. It will also improve the health of the supply chain and ensure materials are available when Lockheed needs them, he added, because suppliers know they have five years of business and are less likely to face a cash crunch.

This is reminiscent of a practice Lockheed used across its entire operation during the most challenging economic days of the COVID-19 pandemic, as it accelerated billions of dollars of advance payments to its suppliers to keep them operating.

Lockheed Martin started making these aggregate demand purchases about a year and a half ago for roughly 70 systems so far. It expects those purchases to save $1.2 billion during the five-year period over what individual procurements would have cost annually, Aylward said.

Those savings are passed on to the government, he added, since Lockheed is legally required to disclose the amount it pays suppliers during contracting processes.

Lockheed is also changing its business operations by using of digital transformation to better automate processes and tools, Aylward said. Digital tools that help manage fleets and supplies are becoming increasingly automated, which frees up humans for other work and allows for quicker decision-making.

This will be increasingly necessary as the F-35 fleet continues to grow, Aylward said, as Lockheed won’t need to expand its staff, which keeps down labor costs. “As the fleet continues to scale and we add more aircraft and more customers, we want to be able to do this with the same amount of people,” Aylward explained.

Lockheed also recently restructured its sustainment business and moved to a different rate structure that allows for more competitiveness and lower labor costs, Aylward said. And the company is trying to find ways it can help its customers — the F-35 Joint Program Office, U.S. armed services and international clients — be more efficient.

“If we can make parts more reliable by redesigning or improving how we maintain a part, those are less demands on the maintainers in the field,” Aylward said. “Anything we can do to reduce their manpower demands will help the overall cost of the program.”

That includes working with maintainers on flight lines to identify ways to improve maintenance plans, he said, and make it easier to maintain certain parts or systems.

Lockheed also wants to broaden the use of conditions-based maintenance on the F-35 — and take advantage of the copious data collected by the planes to better predict when parts might fail before they actually break. The Air Force has experience using conditions-based maintenance on the F-35, but Aylward said Lockheed wants to expand the approach to more customers and more systems on the aircraft.

“If we know when a part’s going to fail with some accuracy, we can actually preplan supply, preplan maintenance action,” Aylward said. “There’s so much data that comes off this jet; we can now start to predict, based on the reliability data, when we need to change this valve or when we need to swap out this widget here. And then we actually preplan to do those maintenance actions, and it creates a lot less strain on the manpower in the field and on the flight line.”

Since 2019, Lockheed Martin has repeatedly proposed a performance-based logistics contract for the F-35 that it said would save the government money, allow faster repairs, and result in improved availability of spare parts.

The Pentagon is open — albeit cautious — to the idea, but lawmakers have expressed skepticism. The 2022 National Defense Authorization Act put restrictions on the department’s ability to enter into a performance-based logistics contract for the F-35, requiring the Pentagon to first show the deal would produce either lower costs or better performance than the current contract, which covers 2021-2023.

Lockheed officials said the company remains interested in a performance-based logistics contract with the U.S. Defense Department, and they hope to have a limited contract in place by the beginning of 2024. The company is working with defense officials to provide data that would help the department determine whether a performance-based logistics contract would be worthwhile, Lockheed officials noted.

In November, Lockheed Martin received a request for proposals from the F-35 Joint Program Office for a performance-based logistics contract covering only supply support and demand reduction, as well as for a companion contract for other elements such as additional support and services now covered by the annual sustainment contracts.

That performance-based logistics contract would last 2024-2028. If all goes well, could be in place by Jan. 1, 2024, said Brady.

Lockheed has worked with the JPO, the Office of the Secretary of Defense, and the Pentagon’s Office of Cost Assessment and Program Evaluation to sort through the data for such a contract — as well as data for the companion contract — to meet requirements in the National Defense Authorization Act.

Brady said the data sets are necessary for the Defense Department to conduct its analysis in comparison to the 2021-2023 figures. And she believes the company and the U.S. military should continue working together to make the F-35 more affordable.

“We know the things that are driving our cost,” Brady said. “But we really need the input from our partners and our customers, our services, to be able to say: ‘Here are the things that we need help with ... to reduce the cost overall, or making it easier to maintain.’ ”

Source: Defense News