Pentagon: F-35 Program Costs Fell $4.5 Billion Last Year

May. 23, 2013 - By AARON MEHTA and MARCUS WEISGERBER – Defense News

WASHINGTON — The total price tag for the F-35 Joint Strike Fighter program fell $4.5 billion in 2012, according to a new government report.

This marks the first time in the F-35’s checkered history that estimators have lowered the projected cost of the program, the Pentagon’s most expensive acquisition effort.

The pricing, unveiled in the Pentagon’s annual selected acquisitions report (SAR), released Thursday, now projects development and procurement of the fifth-generation stealth fighter at just over $391 billion, still tens-of-billions of dollars more than originally projected.

The F-35 is just one of 78 DoD acquisition programs reviewed in the SAR. Collectively, the cost of those programs grew $39.6 billion — or 2.44 percent — in 2012.

Frank Kendall, the undersecretary for acquisition, technology and logistics, said it was the “first time in my memory” no program in the SAR breached any of the federal spending caps. If a program breaches a so-called Nunn-McCurdy threshold, it could be canceled unless recertified by DoD.

The Pentagon’s Better Buying Power initiative, an acquisition reform effort designed to improve the weapons buying process and get DoD more bang for its buck, has helped improve program performance, according to Kendall.

“There is some evidence that things are getting better,” he said during a May 23 speech at the Center for Strategic and International Studies think tank. “We’re going in the right direction, but there’s still a lot of room to do better.”

Earlier this year, Kendall rolled out an updated version of Better Buying Power, which continues to refine the acquisition process and make programs more affordable.

The SAR report breaks the F-35 program into two subprograms — the aircraft, built by Lockheed Martin, and the engines, made by Pratt & Whitney. Costs for the aircraft dropped $4.9 billion, or 1.5 percent, during 2012. At the same time, engine costs rose by $442.1 million, which the report primarily blames on “revised escalation indices.”

Overall, the average procurement cost per plane dropped from $109.2 million in 2011 to $104.8 million in 2012. The main driver of the reduction is a drop in the labor rates for Lockheed, Pratt and their subcontractors, as well as revised airframe and subcontractor estimates.

Unit Recurring Flyaway costs — the total cost for the platform, engine, mission and vehicles systems and engineering change orders — remained fairly steady, with the average of the F-35A variant dropping from $78.7 million to $76.8 million, and the Navy’s carrier variant rising from $87 million to $88.7 million.

The largest drop came from the Marine Corps F-35B jump-jet model, which dropped the average almost $3 million, from $106.4 to $103.6 million.

The operations and support (O&S) and cost-per-flying-hour estimates were not updated in the SAR. Instead, those figures will be released in concert with the annual F-35 Defense Acquisition Board (DAB), which is due out in the fall, according to an F-35 Joint Program Office official.

The SAR noted that the program triggered an administrative research, development, test and evaluation cost breach this year, but dismissed it as a result of relocating funds rather than a cost overrun.

“This is the first year a cost reduction was noted,” Laura Siebert, Lockheed spokeswoman, wrote in a statement. “We will work with the F-35 Joint Program Office to implement further cost saving measures, which will result in additional significant decreases to the total program cost. The top priority of the government/contractor team is to continue to cost-effectively deliver the F-35’s unprecedented 5th generation capabilities to the warfighter.”

The F-35 was not the only program to receive good news.

The Air Force’s Advanced Extremely High Frequency satellite program, a key part of the Pentagon’s secure communications network, saw costs for the fifth and sixth satellites drop $510.4 million, or 14.6 percent, since 2011, a result of “reduced estimate to reflect program efficiencies for production and launch operations.”

The Army’s procurement program for the UH-60M Black Hawk helicopter also significantly drove costs down, by 11 percent. Those savings came from a combination of multiyear contracting, an acceleration of the procurement schedule and a reduction in engineering change orders