Wednesday October 01, 2014

Australia to benefit from lower F-35 LRIP costs

The F-35 production line. (Lockheed Martin)

Lockheed Martin has reached in principle agreement with the US Department of Defense on reduced pricing for the next two low rate initial production – LRIP – batches of F-35s. The savings, which equate to an up to eight per cent saving over previous LRIP batches, should benefit Australia, which is acquiring its first two F-35s under LRIP-6.

The next two F-35 production contracts for LRIP lots 6 and 7, which comprise orders for 71 of the aircraft, will see a decrease in F-35 unit costs, coupled with negotiating lower prices on a number of other smaller contracts. This, Lockheed Martin said, allows “the Department to purchase all the aircraft originally planned, including those that were in jeopardy of being cut due to sequestration budget impacts”.

For the moment no details of the unit costs have been released, however, the unit prices for all three variants of the aircraft in LRIP-6 are approximately four per cent lower than the LRIP-5 contract. LRIP-7 unit prices will show an additional four per cent reduction. Consequently the LRIP-7 price represents about an eight per cent reduction from the LRIP-5 contract signed in December 2012.

“These two contracts represent a fair deal that is beneficial to the government and Lockheed Martin,” said Lt Gen Chris Bogdan, F-35 Program Executive Officer.

“Improving affordability is critical to the success of this program, and by working together we were able to negotiate a lower cost F-35. There is still work to be done, but these agreements are proof the cost arrow is moving in the right direction. We will continue to work with industry to identify areas for savings in future production contracts.”

Deliveries of 36 US and partner nation aircraft in LRIP-6 will begin by mid-2014 and deliveries of 35 US and partner nation aircraft in LRIP-7 will begin by mid-2015. The agreement, which took six months to complete, does not include the Pratt & Whitney engines.

Comments

10 Responses to “Australia to benefit from lower F-35 LRIP costs”
  1. Johnno says:

    A bit optimistic Old Boy.

    If you bother to check LRIP 6 was planned to consist of 38 ac and LRIP 7 was to be 70 ac in its own right!
    71 ac over 2 years represents no increase in production, simply a little more certainty for the parts suppliers .
    ………and production isn’t ramping up (1) because the F-35 is still a somewhat mobile collection of problems; and (2) the US cannot afford it.
    Again if you want to check., the US hasn’t ordered more than around 70 fast jets a year (F18E,F,G and F35A,B.C) this decade!
    Yet the F35′s economic price is based on production rates òf 200 ac a year made up of 120 odd US and the rest exports. Dream world stuff.

  2. Peter says:

    Good to see LRIP costs coming down, but that’s measured in US$. Last time I checked, in this country we are still using A$. When the federal Gov’t contracted to buy 2 F-35s, and an indication of 14 more, the buy prices are in US$, and the A$ was about $1.02 to the US$. Right now it’s less than $0.90 to the US$. That’s a fall in buying power / increase in cost of about 14%. The trend from those in the know is that it might go back to around A$0.85 to 1 US$.
    So sure it’s great to see some reduction in US$ pricing, however it’s the exchange rate that’s the killer here to forward planning in Defence Budgets. Unless some-one in Treasury saw the fall of the A$ coming, and bought some forward exchange !

  3. paul davis says:

    Just another spin from LockMart.It will keep going up.

  4. Jon says:

    We need to back out of this deal and RUN not walk the other way…. Watch the Four Corners doco on the snow job Lockheed did to sell it and then the snow job the Govt did in ordering it without due process.. We buy twin engined aircraft for a reason… Our Hornet losses are the lowest of any aircraft weve ever had…when the burner flames out theres another to get you home..

  5. Raymond says:

    Jon – while I believe that was part of the rationale behind our selection of the F/A-18 over the F-16, the thinking nowadays is as engine technology is more advanced and they are much more reliable, a single engine is acceptable… however I, for one, would still prefer two – things can, and do, still go wrong!

    As to the first part of your comment, I think you will find that the F-35 will prove to be a winner, and if you think that the Four Corners doco was unbiased and impartial, and that the RAAF along with the Government are stupid (as well as the US Government and the USAF, USN and USMC, together with the Governments and armed forces of the other 11 or so nations – so far), then you might be in for a surprise.

  6. NGF says:

    It is still not clear how the the F-35 will perform (it’s only about half-way through its test schedule), nor do we have a firm price. Australia should wait for more data and then make an informed decision by running rigorous tender process open to other aircraft manufacturers. If the F-35 turns out to be the best aircraft, well and good. Either way, we will know that we’ve made the right decision.

  7. Raymond says:

    NGF – it’s hard to know a firm price when final timeframes and numbers are still an unknown… that’s not a hard concept to understand. As to the aircraft itself, the Government and the RAAF already know they’ve made the right / best choice. As far as Australia is concerned, I understand that the F-35 has been subjected to the most assessment of any aircraft procurement we’ve made, perhaps even of any defence procurement to date full stop. Ever wondered that perhaps the reason why, is because it’s simply a no-brainer? Both the Government and the RAAF have said it’s the obvious and most suitable choice for us. Surely you don’t really think they are willing to risk such a hugely important thing as Australia’s future air combat capability and around $15 billion on a flimsy premise? Claiming so would be a long bow to draw. I’m sure that the F-35, once it has all of its problems ironed out, will prove to be a game changer and a winner, and its naysayers will become subdued.

  8. NGF says:

    Raymond – I also hope the F-35 turns out to be the best choice. But hoping is not knowing. A glance the the Projects of Concern list will show that Defence has a record of serious procurement problems, especially when it comes to purchasing unproven platforms (eg Wedgetail, MRH90, Tiger, and MRTT) that have run behind schedule and/or over budget:

    http://www.minister.defence.gov.au/2012/12/12/minister-for-defence-and-minister-for-defence-materiel-joint-media-release-update-to-the-projects-of-concern-list/

    Given the above record, I think it is surprising that the due diligence of a competitive tender was not followed in the case of such a large and important purchase. Other countries such as South Korea and, more recently, Canada, have gone down the competitive path when considering the F-35.

    To be clear, I am not an F-35 naysayer, but I am a cautious customer and taxpayer. I agree that the F-35 has the potential to be a game changer, but potential is not proven combat power. I would therefore like to see the F-35 prove itself in realistic exercises against the latest air defence systems and generation 4+ aircraft, and I would like to know the price, before we make a final commitment.

  9. Andrew McLaughlin says:

    It is unrealistic to compare the F-35A with the Wedgetail or MRTT, both of which Australia was lead customer for, or MRH/ARH which have had spares and development issues largely driven by the political circumstances in Europe.

    When the RAAF hits IOC with its F-35s in 2020, the USMC will have had five years operational experience, the USAF three, the USN two, and Israel and possibly Japan a couple of years under their belts too, and there will be several hundred aircraft flying operationally.

  10. paul davis says:

    Andrew,the 35 does not even attend trade or airshows yet.Are they that unsure it could make it to them.It would prove that they are actually on track?Not having a go mate(i respect u know more than us) but i think they will strip more capability from the jet.If they did deploy to shows it would shutup all the naysayers.