Friday, December 17, 2010

JSF LRIP IV Cost Targets Released

By Amy Butler

The Pentagon’s most recent per-unit target price for the conventional-takeoff-and-landing (CTOL) version of the F-35 Joint Strike Fighter is $111.6 million, according to program officials.
The target price for the short-takeoff-and-vertical-landing (Stovl) version, which has encountered the most challenging technical and testing problems, is $109.4 million, the F-35 Joint Program Office says. And the target cost for the most expensive variant — the carrier version (CV) — is $142.9 million, officials say.
The price data traditionally has not been publicly released, but the program office released these figures to Aviation Week in response to questions.
Neither price includes the cost of the Pratt & Whitney F135 engines; that contract is under negotiation. Based on the low-rate-initial-production (LRIP) III pricing, the average cost of a CTOL engine is about $19 million and the average Stovl engine and lift-fan system cost is about $38 million. Pratt has offered a price reduction of at least 10% for LRIP IV.
Negotiations for the LRIP IV contract began in October 2009 and continued for more than a year; the contract deal was announced Nov. 19 without data on the per-unit target pricing. During that time, the Pentagon learned of more delays in delivering test aircraft as well as a lag in the flight testing program itself. Pentagon procurement czar Ashton Carter and acting Air Force procurement chief David Van Buren shifted LRIP IV away from being a cost-plus-incentive-fee contract.
LRIP IV is the first fixed-price, incentive-fee contract on the JSF production program. Pentagon officials were planning to shift to a fixed-price arrangement in LRIP V, but accelerated that plan to reduce financial exposure to the government of potential cost overruns. LRIP IV also includes the first purchase of CV versions.
The target price is driven largely by quantities. The prices include 11 CTOLs, one of which is a priced option. The base buy includes 10 CTOL aircraft for the U.S. Air Force. The Marine Corps is buying 16 Stovl aircraft, with another going to the United Kingdom. London, however, recently announced it would not purchase a Stovl fleet and this aircraft will be used for testing. This leaves the U.S. Marines and Italy as the only potential Stovl customers.
The U.S. Navy is buying four CVs in LRIP IV — most expensive version and the least mature at this point in the development program.
The LRIP IV contract stipulates that the government’s maximum per-unit financial exposure is 120% of the target price. Any overrun exceeding that ceiling (which represents the out-of-pocket cost to the government) would be paid for by prime JSF contractor Lockheed Martin. The funding would first come out of the company’s profit.
These per-unit target costs include some ancillary items not directly associated with building production aircraft, such as testing instrumentation equipment, says Tom Burbage, Lockheed Martin executive vice president and general manager for F-35. Though he says that the government’s per-unit target price is higher than Lockheed’s unit recurring flyaway (URF) price, the two sets of numbers are following the same price reduction curve.
Lockheed officials declined to release the URF because they say it is competition-sensitive; the F-35 is still competing against the Gripen, Eurofighter and F/A-18 E/F in various international campaigns. Based on the most recent multiyear procurement of 124 F/A-18E/F and E/A-18G aircraft, the per-unit cost is approximately $42.7 million, excluding the cost of both engines.
However, Burbage says in general the target per-unit cost cited by the Pentagon exceeds Lockheed’s URF by about 3-4%. “It is not worth arguing about real prices … because it is only really a small amount of money,” he says. “These numbers aren’t important to the U.S. Department of Defense” because officials they know the numbers. “These numbers are important to the international partnership [and] they do tend to get taken out of context,” Burbage adds.
Lockheed’s decision to agree to a fixed-price, incentive fee contract in LRIP IV earlier than planned is an effort to “try and dispel some of the cost discussion … to try and signal to the world that we have confidence in our cost.”
A government source says that the if the target per-unit prices are achieved, the cost is on a steep downward curve - reducing by more than $100 million since the first lot - for the CTOL version, which is competing in the international market.
According to a government source, the prices for LRIPs 1-3 are:
LRIP 1 - CTOL - $221.2 million,
LRIP 2 - CTOL - 161.7 million; Stovl (first purchase) $160.7,
LRIP 3 - CTOL - $128.2 million: Stovl $128 million.
The LRIP IV buy doubles Lockheed’s F-35 backlog, and Burbage says that each time the quantity ordered doubles, the per-unit price will decrease by 25-28 percent. Ultimately, Lockheed plans to sell at least 3,100 of the single-engine stealthy fighters, and officials hope to achieve an average recurring flyaway cost of about $60 million per CTOL unit.
Many of Lockheed’s smaller F-35 subcontractors are already under fixed-price arrangements, but negotiations must still be done on LRIP IV with BAE and Northrop Grumman, the top two industrial partners on the airframe portion of the program.
Talks for LRIP IV are nascent, but Burbage says he hopes to have a contract for this next lot by June.

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