Lockheed F-35 at Risk of Missing Goals, GAO Says (Update3)
March 11, 2010, 1:44 PM EST(Adds Carter’s comment on fixed price in 11th paragraph.)
By Tony Capaccio
March 11 (Bloomberg) -- Lockheed Martin Corp.’s F-35 jet fighter, its largest program, faces “substantial risk” of not delivering “the expected number of aircraft and required capabilities on time,” congressional auditors said today.
The program “continues to struggle with increased costs and slowed progress,” problems that “were foreseeable,” Michael Sullivan, the U.S. Government Accountability Office’s top F-35 analyst, told the Senate Armed Services Committee.
Sullivan recommended the Pentagon consider reducing its annual planned purchases of the plane unless the program shows “progress in testing and manufacturing.”
Sullivan’s assessment is a warning to the world’s largest defense company. The Air Force wants to buy 43 fighters in fiscal 2011, 13 more than Congress approved this year. The armed services panel has authority to cut the request, and GAO recommendations often form the basis of congressional cuts.
The F-35 is the military’s most expensive weapons program. The projected cost for the planned purchase of 2,443 U.S. aircraft now appears to have increased to $323 billion from $298 billion two years ago. The new figure is up 40 percent from the $231 billion when Bethesda, Maryland-based Lockheed won the program in 2001, Sullivan said.
The Pentagon is taking “positive steps that if effectively implemented” should improve the program and provide “more realistic cost and schedule estimates,” he said. Still, “further cost growth and schedule extensions are likely.”
Program Review Required
The Pentagon’s director of cost assessment, Christine Fox, said the projected average cost per aircraft has almost doubled -- to as high as $95 million from $50.2 million when the program started.
The increase triggers a review under a 15-year-old law requiring the Pentagon to certify the program is essential to national security or face cancellation. Fox said Congress will be formally notified of the cost-threshold violation April 1.
Committee Chairman Carl Levin of Michigan was troubled by the cost increase. “Who’s accountable for that?” he said. “Whose mistakes? And who’s paying the price?’
Lockheed‘s contracts to date have been the cost-plus type that require the government to pay for overruns. Ashton Carter, the Pentagon’s top weapons buyer, told the committee today the time has come for Lockheed to sign a fixed-price contract that would require the company to assume some of the financial risk.
Next-Generation Fighter
The F-35 is the military’s next-generation fighter. It is designed for missions including bombing and air-to-air combat, and it will be used by the Air Force, Navy and Marine Corps. It will replace aircraft including F-16s and A-10s, as well as Harrier aircraft flown by the Marines and the U.K.
Levin, in opening today’s hearing, said that, while the panel has backed the F-35 program, “people should not conclude that we will be willing to continue that strong support without regard to increased costs coming from poor program management or lack of focus on affordability.”
Levin, in an interview before the hearing, said, the committee is concerned about whether “we are going to keep costs under control and what’s going to happen to the calendar: How is that going to slip, not just for our own capabilities, but what does that do to the allied participation?”
The program has eight partner nations contributing their own funds for development, including the U.K., Italy, Canada, Australia, Denmark and the Netherlands.
Cost Overruns, Delays
Sullivan told the committee that program costs overall have increased $46 billion since 2007, and the development schedule has been extended 30 months.
That extension includes a new 13-month delay directed last month by Carter. In addition, Carter added four test aircraft, shifted $2.8 billion in production funds for continued research and delayed the purchase of 122 jets to beyond 2015.
Carter told the committee today that the Air Force and Navy now project they won’t have the first combat-ready planes until 2016, three years later than the Air Force planned and two years later than the Navy’s objective. The Marine Corps’ target date remains 2012, he said.
Air Force Secretary Michael Donley and Chief of Staff General Norton Schwartz said yesterday they “are disappointed” by Lockheed’s “failure to deliver flight test aircraft this year.”
The company has been experiencing “assembly inefficiencies that must be corrected to support higher production rates,” they told the House defense appropriations subcommittee.
Lockheed Martin spokesman Chris Geisel said the company expects to be back on schedule next year and is making steady improvement in manufacturing.
“Production trends show radically marked improvement across the board,” including the latest three aircraft to enter the assembly line that are proceeding on schedule, he said in an e-mailed statement.
Lockheed fell 31 cents to $82.27 at 1:21 p.m. in New York Stock Exchange composite trading. The shares climbed 28 percent in the past 12 months.
--Editors: Bill Schmick, Ann Hughey
To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net
To contact the editor responsible for this story: Jim Kirk at jkirk12@bloomberg.net
