Lockheed: budgeting strategy could add billions to JSF's development costs

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The Lockheed Martin F-35 Joint Strike Fighter faces a series of multi-billion dollar annual cost overruns if the US Department of Defense continues a shift to a more conservative budgeting stance.

The Pentagon's fiscal year 2010 budget request for the F-35 contains a hidden cost overrun worth $480 million. The extra money was not requested to cover a specific cost growth, but instead what programme officials consider to be an overly cautious budget estimate reported by a relatively new internal auditing group called the Joint Estimating Team (JET), says Dan Crowley, Lockheed's executive vice-president and general manager for the F-35.

The Obama administration has called for an updated JET analysis to inform the FY2011 budgeting process, and Crowley fears that a similarly conservative approach to estimating development and production costs could lead to dramatic new overruns.

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 © Lockheed Martin

"We think the government is smart to pay out [cost] growth and [additional] schedule as we need it, rather than adopt some two-year, multi-billion dollar, conservative position," says Crowley, speaking on the sidelines of a roll-out ceremony for the US Navy's first F-35C at Fort Worth, Texas on 28 July. "It's like giving up before you even have a chance to demonstrate what you can do."

The issue began to develop after separate estimating teams formed by the US Air Force and USN were consolidated into a single group to analyse the F-35's cost structure, Crowley says.

The JET's first report last year identified four areas where the F-35's programme estimates are overly optimistic, including software coding, engineering staff reductions, the pace of flight tests and manufacturing schedule.

In response, Crowley says that the programme can show progress on each area except the flight-test phase, which has completed only 2% of its planned 5,000 sorties. Lockheed will not be able to offer a reliable estimate for the flight-test phase until its surpasses the 10% mark at the end of next year, he adds.

But the original JET report last year prompted the DoD to adopt an annual review process, in which the programme's budget could face significant increases.

"We're okay with that strategy because it gives us time to prove that we in industry don't want that [extra] money," Crowley says. "If we have an over-target baseline and they give us that money we get no fee on it and it comes at the price of jets, so that's not where we want to be." However, he adds that Lockheed is optimistic that the JET will adopt a less conservative position in its next review.

But F-35 programme executive Brig Gen David Heinz says the JET's estimate is not likely to change until Lockheed can complete more flight test hours. "We are still different in our opinion," he says. "The ultimate to the [JET] estimate is flight tests."