(Photo by Matt Cardy/Getty Images)
By Forbes US Edition
Lockheed Martin’s F-35A was awarded Initial Operating Capability (IOC) status by the U.S. Air Force on August 2, allowing a single USAF squadron to use the aircraft, potentially in combat. This marks an important milestone for the project that has long been criticized by Congress and potential buyers for being costly and behind schedule.
For Lockheed Martin though, the aircraft looks set to be a revenue driver for years to come. The F-35 program, worth an estimated $379 billion, is the costliest weapons project for the Pentagon. The US military plans to purchase a total of 2,443 of the aircraft—of which 1,763 will go to the USAF. A Selected Acquisition Report (SAR) by the Pentagon published on March 25 this year, stated that about $1.5 trillion will be spent over the project’s lifetime including acquisition, maintenance and sustainment costs.
Controversial from the Start
Air Force officials have pointed out that the plane is far from being a finished product with certain software capabilities still being worked on. These include features such as data sharing between aircraft. This means that the plane has undergone enough tests that it may be used in combat missions, but there is significant room for improvement.
Critics, however, say that the latest declaration means nothing, which makes sense as only after initial operational testing will it be clear whether the plane is ready for combat. They believe that this is another publicity stunt by Lockheed and the military to convince lawmakers that the program is on track so they can request further funding.
Another potential concern raised by the Government Accountability Office (GAO) was that the fighter jet’s Autonomic Logistics Information System (ALIS)—the “brain” of the aircraft—could still face problems as testing has not been thorough. The agency feels a potential issue may ground the entire fleet, due to the lack of a backup system.
Supporters, on the other hand, say that the program has put the majority of its problems behind it and that production schedules are finally starting to click into gear as manufacturing ramps up. Lockheed believes that it can further cut costs, and aims to reduce the production cost of an F-35 to $85 million by 2019. CEO Marillyn Hewson told CNBC on the sidelines of this year’s Farnborough Air Show that Lockheed had lowered production cost per plane by 57% since the first delivery.
Questions Still Remain
There are still some short-term concerns for the company. Lockheed and the Pentagon are currently negotiating two contracts for 160 aircraft valued at more than $14 billion. Negotiations for production lots 9 and 10 have been ongoing since 2015 and Lockheed has stated that its current funds will not be able to sustain production costs in the future.
The company has spent nearly $1 billion out of its own pocket to pay suppliers who have already started work on the aircraft. Furthermore, if negotiations are not completed soon, Lockheed says it may resort to commercial debt to ensure funding for the stealth aircraft, which may lead to price hikes. Contract negotiations were expected to be completed earlier this year, but the government is taking longer than expected to assess the price of the planes.
F-35 Driving Lockheed
Lockheed intends to sell more than 3,000 of the new-generation jets to the US military as well as foreign partners, such as the United Kingdom, Israel, Italy and Norway. Production will ramp up to its highest point in 2023, when around 180 units will be produced a year, according to current schedules. Analysts project one-fifth of Lockheed’s estimated $50 billion in 2016 revenue to be generated by the F-35 program.
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