Lockheed Martin, Pentagon announce F-35 contract deal that shaves $728 million in costs

A Lockheed Martin F-35A jet flies during a training mission at Hill Air Force Base, Utah. (Photo courtesy of George Frey/Bloomberg)

The Pentagon and Lockheed Martin announced on Friday a contract deal for the next batch of 90 F-35 Joint Strike Fighter jets that shaves $728 million off the total cost of the program and brings the per-plane cost of the stealth plane below $95 million for the first time.

The contract is “a good and fair deal for the taxpayers, the U.S. Government, allies, and Industry,” F-35 Program Executive Officer Lt. Gen. Chris Bogdan said in a statement. “We continue to work with Industry to drive costs out of the program.”

The announcement brings an end to months of unusually public negotiations between the Trump administration and Lockheed Martin, which manufactures the plane.

In late December, the president took to Twitter to criticize the program for being too expensive. He even went so far as to ask one of Lockheed’s competitors, Boeing, to “price out a comparable F-18 Super Hornet,” as an alternative to the F-35. The Pentagon subsequently said the F-18 would be considered as an alternative to the F-35C, a more expensive variant that accounts for a very small portion of the overall program.

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On Monday, Trump took credit for squeezing costs out the program, which he estimated at the time would be about $600 million.

“President Trump’s personal involvement in the F-35 program accelerated the negotiations and sharpened our focus on driving down the price,” Lockheed Martin spokesman Bill Phelps said in a statement Thursday. “The agreement was reached in a matter of weeks and represents significant savings over previous contracts.”

The unit cost of the plane has been on a long downward trend as Lockheed ramps up its volume of production. The company has been saying for years that it expects the cost of the plane to fall to $85 million per plane over the next few years, and the Air Force’s budget for 2017 already reflects cost reductions of about $10 million per plane.

Bogdan told reporters on Dec. 19 – before the president tweeted about the program and met publicly with defense companies – that the F-35’s cost per plane should fall “somewhere on the order of 6 to 7 percent per airplane” for the next batch of planes.

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The deal announced Friday translates to a 7.3 percent reduction in the per-plane cost of the most common F-35 variant. When the overall costs of the program are factored in the reduction is closer to 8 percent.

“This is both a substantial price reduction and an expected one. [Joint Program Manager] Bogdan talked about these kind of broad expectations last year,” said Mackenzie Eaglen, a military analyst at the American Enterprise Institute, a conservative think-tank.

Eaglen said the president’s intervention probably sped the negotiation toward a conclusion, but said the cost-reductions were already part of the plan.

“The company is going to let him think that this was due to his intervention. . . . They have no reason not to do that,” Eaglen said. “But I have a feeling the uncertainty he injected spurred a deal much more quickly.”

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The contract deal announced Friday priced the most common F-35 variant at $94.6 million per plane. The next “lot” of 90 planes includes 35 jets that will be sold to allied governments including the U.K., Australia and Israel.