However, that trend appears likely to end in 2021, at least for the cheaper and more numerous F-35A model used by the U.S. Air Force.
Reuters’s Mike Stone reported on July 26 that Lockheed CFO Kenneth Possenriede warned analysts in a conference call that “due to where we are in learning, due to where we are with inflation and due to where we are with the added capabilities that they want on the aircraft, it is likely you’ll see an increase in prices, a modest increase in prices of where we are today.”
However, Posenriede forecasted that the price of the more expensive F-35B jump jet and F-35C catapult-takeoff models would either remain steady or continue to decline.
It’s true that inflation in the U.S. in 2021 has been exceptionally high at 5.4% as of July 2021, compared to 1 to slightly over 2% for most of the last decade. Furthermore, as part of the highly expensive Block 4 upgrade program, new F-35s are being built with more advanced components including high-resolution displays, faster computers and a more modern electrooptical targeting system, contributing to a rise in costs.
The price rise had been hinted in advance in February when, as reported by John Tirpak of Air Force magazine, Lockheed Aeronautics VP Gregory Ulmer advised price reductions would likely end in the forthcoming Lots 15-17 orders, and the firm was “working to keep a cost-neutral position.”
Ulmer cited Block 4 costs (specifically the “Tech Refresh 3” component) as well as a “significant quantity reduction in the next three years…on the order of 100 aircraft”, which diminished the ability to spread costs across airframes.
The Pentagon plans to spend a total of $400 billion procuring around 2,500 F-35s, including 1,763 F-35As for the Air Force, 353 F-35B jump jets for the Marine Corps, and 340 F-35Cs for both Navy and Marine Corps. Furthermore, 900 F-35s are projected to be exported abroad through 2046.
As of 2021, around 400 F-35s have been delivered to the U.S. military, with another 200 delivered to foreign partners and clients, which total 15 countries at present. However, the Pentagon can’t ink long-term contracts for ‘full rate’ production due to the incomplete state of the F-35’s hi-tech training simulators.
At $78 million the fifth-generation F-35A’s unit cost compares favorably to the latest non-stealth 4.5-generation Western fighter. The Rafale, Typhoon, Gripen-E and F-15EX are more expensive at $85 to $100 million apiece. The older F-16 and Super Hornet are modestly cheaper at $65 to $75 million each. But while these aircraft do have certain performance advantages over the F-35, all are vastly more vulnerable to long-range anti-aircraft missiles proliferating in militaries across the globe.
However, the F-35 unit price metric has the shortcoming of failing to reflect additional costs in spare parts, logistics facilities and so forth that come with F-35 purchases. When those are spread out across F-35A orders in 2021 they lead to a ‘Gross Weapon Unit Cost’ in budget documents of $110 million for 2021, higher than in preceding years due in part to decreased volume of orders.
Overall, though, a moderate increase in unit price arguably isn’t the main issue, because procurement costs account for less than a quarter of the $1.7 trillion projected lifetime cost of the F-35 program.
Instead, a report published by the Government Accountability Office (GAO) on July 7 warns that its sustainment—currently expected to total $1.27 trillion in real dollars—which threatens to break the Pentagon budget.
Sustainment budget crunch
According to the GAO, since 2012 the expected lifetime sustainment costs of the F-35 fleet have increased over $150 billion from $1.1 to $1.27 trillion. And by 2036 this means the F-35 fleet will be costing the Air Force $4.4 billion more annually to operate than it can afford, unless it can reduce sustainment costs nearly by half.
The service, which operates the least expensive F-35A variant, has by far the biggest operating sustainment overruns. The GAO forecasts F-35As would cost $7.8 million per plane per year of operations—$3.7 million more than the Air Force’s ‘affordable’ budgetary target. That means the service must reduce operating costs by 47% to attain affordability. The GAO report claims that even if spare parts were furnished for free, the F-35A would overrun budget targets.
The Marine Corp’s F-35B jump jets cost $9.1 million per years, $2.3 million over budget. And the U.S. Navy’s F-35C jets cost $9.9 million annually—only $1.1 million over budget.
The GAO is skeptical of oft-repeated assurances that the problem will get better with time. “Cost reductions become increasingly difficult as the program grows and matures,” it warns.
The F-35’s Joint Program Office (JPO), which coordinates F-35 development and procurement across services contested some of the GAO’s findings, insisting life-cycle costs had only increased by $42.8 billion (in 2012 dollars) according to internal numbers. It also argued that changes to goalposts—including extending F-35 service life to 2064 to 2077 and increasing projected flying hours from 14.9 million to 15.6 million—account for lifetime cost increases.
It also claimed that F-35 operating costs had declined from $38,000 to $33,300 in 2020. As that figure is in base-year 2012 dollars, it implies around $38,000-39,000 in 2021.
A path ahead to reduced statement?
The issues with F-35 operating costs have become widely acknowledged by 2021, raising the possibility of a decrease in the Air Force’s total buy.
Some Air Force brass, formerly known for mounting a full-court press defending the F-35 program, have begun suggesting the jet may be too expensive to replace all of the service’s older F-16 jets.
The Air Force’s funding ‘wish list’ in 2021 notably did not include additional F-35s as it has in the past, while comments regarding a recent wargame derided the usefulness of F-35s in a campaign to defend Taiwan. Some officials, fearing the F-35 lacks the range and air-to-air combat specialization desired in the Pacific, favor moving on sooner to a new fighter design instead.
The F-35’s critics and supporters have diverging views on how to fix the operating cost problem. The GAO report argues, “[Department of Defense’s] inability to arrest the increases in F-35 sustainment costs and make progress towards the services’ established affordability constraints is due in part to the department’s not having a clear, strategic approach across the F-35 program.”
And the GAO maintains that approach should be “…to reduce the total number of F-35A aircraft they plan to purchase, or to reduce the aircraft’s planned flying hours. We recommended, among other things, that Congress consider making future F-35 acquisitions contingent on progress reducing sustainment costs.”
The report also suggests having military personnel undertake more maintenance tasks currently performed by contractors.
But Lockheed-Martin unsurprisingly argues in favor of the opposite, claiming if it’s awarded an exclusive five-year Performance-Based Logistics (PBL) contract, it could reduce F-35 flight hour costs to around $25,000. Such a contract would theoretically be based on a fixed fee.
Officials in the Pentagon have expressed skepticism that target is achievable, and have complained that Lockheed retains too much proprietary control over the aircraft and its upkeep. Still, the Air Force may end up agreeing to a shorter-duration ‘skinny’ PBL with Lockheed.
There is no question the Pentagon and foreign clients will procure hundreds more F-35s in the next few decades—rather at stake is how many hundreds in the longer term. A small price increase is unlikely to put a big dent in F-35 sales, but unsustainable sustainment costs might if they cannot be significantly reduced in the next few years.