F-35 Lot 9/10 Prices
There are all kinds of wild claims being made about the affordability of the F-35 based on the Lot 9/10 LRIP (Low Rate Initial Production) contracts. Let’s attempt to sort out the fact from fiction.
As you undoubtedly know, the government forced Lockheed to accept a unilateral contract price for the F-35 Lot 9 LRIP.
“After 14 months of intense negotiations, the Pentagon moved forward on its own with the LRIP 9 contract. Under the $6.1 billion award, Lockheed will deliver 57 F-35 airframes. Including engines, the mandated pricing per aircraft amounted to $102.1 million for each F-35A, $131.6 for each F-35B and $132.2 million for each F-35C.” (3)
I still don’t understand how a company can be forced to accept a unilateral contract but that’s not the main point of this post.
Here are the imposed prices of the individual aircraft types which includes the engine, according to Business Insider website (4).
- 42 F-35A - $102.1M per
- 13 F-35B - $131.6M per
- 2 F-35C - $132.2M per
“During a speech in Washington US
Here’s some Lot 10 cost figures.
“The Department of Defense awarded Lockheed Martin a contract for Lot 10 of F-35 production, not including engines, on Nov. 23. The “undefinitized contract” is for a total of 90 aircraft and has a ceiling of $7.2 billion.” (5)
Alternatively, another announcement cites a somewhat different price.
“The Department of Defense and Lockheed Martin announced on Friday an agreement worth about $8.5 billion for 90 F-35 jets …” (7)
In any event, note that the Lot 10 contract does not include engines.
“… Pentagon estimates the contract — which includes 90 F-35 airframes but no engines …” (2)
With the engine cost included, here are the prices for the individual aircraft types (1).
- F-35A - $ 94.6M per
- F-35B - $122.8M per
- F-35C - $121.8M per
Overall, these prices reflect around a 7% decrease from Lot 9 prices (1).
Engines
Here is some cost data on the F-35 engines.
For Lot 9 F-35s,
“In April, Pratt & Whitney signed a contract with the Pentagon to produce the ninth lot of F-135 engines that will power the F-35. The contract, worth $1.4 billion, will cover 66 engines.” (6)
That’s $21.2M per engine.
For Lot 10 F-35s,
“…$1.5 billion contract for the 10th lot of F-135s, a total of 99 engines.” (6)
That’s $15.2M per engine.
So, what does any of this tell us about the F-35 cost? Nothing. If the government can unilaterally dictate a price to the manufacturer, what’s to stop them from dictating a price of $50M per aircraft or $1M or any other number they want to use? The fact that the contract was unilateral means that Lockheed clearly believes that the actual price was higher.
So, what is the actual price of the F-35? Well, Lockheed knows but they aren’t saying and the government knows but they don’t care. The actual price is higher than the imposed contract price but we have no idea how much higher.
Imposing a unilateral price is the worst way to do business. While it may make the General in charge of the F-35 program look good in the very short term, it will have far reaching negative consequences. Manufacturers may opt not to bid on future projects out of fear of losing money due to imposed prices that are unrealistic. Alternatively, they may bid but bid enormously higher than normal in an attempt to compensate for the threat of unilateral cost impositions. Do you really think any aircraft manufacturer will ever again bid realistic prices (to the extent that they were doing so before which is a dubious proposition, to be sure)? Of course not. They now know that the government can impose a price so they will compensate and compensate enormously. Do you think any aircraft manufacturer will ever share true cost data with government again, knowing that it can be used against them? The only data the government will ever see from now on is hugely padded figures. This can only hurt the country in the long run – yet another debacle brought to you courtesy of the F-35 program.
Do you think there are some ship builders who are scared to death that the government is going to impose below cost prices on them, too? Those follow on Ford carriers are awfully expensive. Maybe the government will unilaterally lower the price? Ship builders are going to significantly pad up their numbers from now on to compensate for the possibility of imposed prices. We’re going to see ridiculously large claims for added work, change orders, concurrency fixes, repairs (since there are no warranties), etc. Builders are going to grab for as much money as they can as a hedge against unilateral price fixing by the government.
The ripple effect of the unilateral contract imposition is going to be felt throughout the military industry for decades to come.
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(1)Defense News website, “Pentagon, Lockheed Reach Agreement on F-35 Contract For 90 Jets”, Aaron Mehta, 3-Feb-2017 ,
(2)Defense News website, “Lockheed Martin Gets $1B F-35 Sustainment Contract”, Valerie Insinna, 1-Mar-2017 ,
(3)Flight Global website, “Unilateral negotiations still in play for F-35 contract”, Leigh Giangreco, 19-Dec-2016 ,
(4)Business Insider website, “Here’s the price tag for the latest batch of F35s”, Amanda Macias, 20-Dec-2016 ,
(5)Air Force Magazine website, “Lockheed Martin Receives $7.2 Billion Contract for F-35 Lot 10”, Wilson 29-Nov-2016 ,
(6)The Ct Mirror website, “Pentagon-Lockheed fight over F-35 price doesn’t extend to Pratt”, Ana Radelat, 4-Nov-2016 ,
(7)CNBC website, “Lockheed, Pentagon announce $8.5 billion F-35 order”, 3 Feb 2017 ,
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