Pentagon Says Cost To Retrofit F-35s Drops $500 Million

(BLOOMBERG NEWS 06 JUN 13) … Tony Capaccio

The Pentagon projects that costs to retrofit Lockheed Martin Corp.’s F-35 jets, the costliest U.S. weapon system, have dropped by at least $500 million.

The estimate on upgrades for the first five contracts of 90 aircraft has dropped to about $1.2 billion from $1.7 billion, the Pentagon said in a new report to Congress on “concurrency.” That’s the system under which the fighters are being built even as they’re still in development.

Retrofitting involves changes to aircraft that have already been built to fix shortcomings or incorporate improvements.

The projected cost to retrofit the 32 aircraft in the fifth production contract – the latest signed – has dropped to $320 million from the $450 million the Pentagon estimated last year, in an example cited in the report.

The estimate is good news to Bethesda, Maryland-based Lockheed, the world’s largest defense contractor, because the company must pay an increasing share of costs for upgrading planes beginning with the fifth contract.

The drop in concurrency costs follow a 1.1 percent decline reported last month that reduces the program’s total projected cost to $391.2 billion to develop and build 2,443 jets for the Air Force, Navy and Marine Corps. Even with the improvements, the projected cost has increased 68 percent since the Pentagon signed its initial contract for the fighter with Lockheed in 2001.

The revised estimates bolster findings by government analysts that the military and the contractor are making progress in managing the jet’s simultaneous development and production.

‘More Comfortable’

Frank Kendall, who’s now the Pentagon’s under secretary of acquisition, last year called that approach “acquisition malpractice.” In April, he told reporters “I feel much more comfortable” now about the F-35.

The lower retrofit estimates are based less on computer models using historical data and more on “actual costs of implementing approved changes,” according to the report.

The new cost model “reflects a detailed engineering approach informed by the remaining F-35 qualification, flight test and ground test events,” it said.

Lockheed Martin spokeswoman Laura Siebert in an e-mail statement said the $500 million reduction reflects that the company and the Pentagon program office “have worked together to develop a method of projecting” concurrency costs.

The cost projection for the fourth contract of 30 jets dropped to $440 million from $580 million. That’s a per-plane retrofit cost of about $15 million from as much as $19 million, according to the report.

The data in the report indicates a steady decline in retrofitting costs after the fifth contract, with $230 million and $120 million for the sixth and seventh contracts that may be announced this month.

A 10th contract for 66 aircraft that won’t be signed for several years has a projected $50 million in retrofitting costs.

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