Why the Pentagon may not be able afford the F-35 | Washington Business Journal

By Jill R. Aitoro

It’s no secret Lockheed Martin Corp.’s F-35 program is over budget. And I’ve reported recently on why that might be. But can the Pentagon actually afford it?

A federal watchdog agency did the math — and has its doubts.

Here’s why: From fiscal years 2014 to 2018, the Department of Defense plans to increase development and procurement funding for the F-35 from around $8 billion to around $13 billion, an investment of more than $50 billion over that five-year period, according to a Monday report from the Government Accountability Office. That build-up will occur during years of potential reductions in DOD’s budget, thanks to sequestration. Digging in further, from fiscal year 2014 through fiscal year 2037, the program projects it will require development and procurement funding of $12.6 billion per year, on average, with several peak years at around $15 billion.

At $12.6 billion a year, the F-35 acquisition program alone would consume about a quarter of the Pentagon’s annual funding for major defense acquisition. (And these figures don’t even include the costs to operate and maintain the F-35s as they are produced and fielded.) That puts other major programs in a precarious spot, GAO reported, including The Boeing Co.’s KC-46 tanker and the new bomber Northrop Grumman and Boeing plan to target.

So what’s the Pentagon to do? So far, the under-secretary of defense for acquisition, technology, and logistics has focused on supposed “affordability unit cost targets,” which the program office and Lockheed are expected to meet by the start of full rate production in 2019. But the GAO questioned how they could possibly pull that off, considering all three variants of the aircraft are anywhere from $41 million to $49 million over the targets now. And apparently, current funding and quantity projections put unit costs in 2019 above the targets.

And if you think costs will drop significantly once the planes are delivered, think again. The Cost Assessment and Program Evaluation office, within the Office of the Secretary of Defense estimates the cost to operate and support the fleet over 30 years is likely to exceed $1 trillion. That’s three times higher than what was projected when the development program kicked off in 2001, and deemed unaffordable by DOD officials. CAPE also estimates F-35 operations and support costs could surpass the average cost of legacy aircraft by 40 percent or more, rather than save money as originally estimates claimed.

Program officials do disagree with the CAPE estimates, claiming the operation and support will be closer to $860 million — but the distinction is primarily thanks to differing estimates for inflation’s affect on such things as fuel costs. It has little to do with costs tied to the actual program.

So what might turn things around? Continued improvements to manufacturing and management of suppliers have already reduced costs— trimming the number of labor hours needed to build the aircraft, for example. Those kinds of efficiencies will likely continue and expand. And other efforts to trim long-term costs are underway by both the Pentagon’s F-35 office as well as Lockheed, the GAO reported.

But what if that’s not enough? An April 2013 Pentagon memorandum stated that for defense programs, “if affordability caps are breached, costs must be reduced or else program cancellation can be expected.” That’s good in theory, but unlikely for the F-35. As I reported in February, Congress has made it clear the F-35 program isn’t going anywhere.

via Why the Pentagon may not be able afford the F-35 | Washington Business Journal.