The Department of Defense has quietly revealed a long-term plan for signing a series of cost-saving, multi-year procurement contracts to buy a total of nearly 2,000 Lockheed Martin F-35 Lightning II starting in Fiscal 2021.
As the F-35 moves towards full-rate production in three years, the US Air Force and Navy plan to transition from purchasing the aircraft in one-year blocks to multiyear procurement contracts, according to a Selected Acquisition Report released in in late March.
The USAF plans to start the first round of multiyear procurement deals with a three-year contract in 2021, followed by successive five-year procurements beginning in fiscal 2024 until the end of the programme.
The USN plans to continue one-year procurements through fiscal year 2023, followed by successive five-year procurements from fiscal year 2024 until the end of the programme.
Multiyear procurement contracts are a special mechanism that Congress permits the DOD to use for a limited number of programmes at full-rate production to reduce costs by several percent. In total, the DOD plans to purchase 2,456 F-35s: 1,763 F-35As for the USAF; 353 F-35Bs and 67 F-35Cs for the Marine Corps; and 273 F-35Cs for the USN.
Multiyear procurement would guarantee Lockheed Martin large volumes of production work for years to come. For example, the US Air Force plans to purchase 60 F-35As each year starting in 2024. The Joint Program Office’s first planned five-year procurement contract in 2024 would thus guarantee Lockheed Martin 300 orders for the aircraft.
The value of multiyear procurement is not lost on Lockheed Martin.
“Multiyear procurements are a key tool to reducing F-35 acquisition costs, improving industrial base stability and enhancing efficiencies,” said Lockheed Martin. “We are working closely with the Department of Defense on the acquisition approach for an F-35 multiyear procurement beginning in 2021, and we have submitted savings information to our customers to help support their analysis and decisions.”
The Joint Program Office wrote in the SAR that it is pursuing other cost-saving initiatives, including a shared database of parts costs with Lockheed Martin to be used to negotiate “fair and reasonable” pricing for the US and partner nations, as well as looking for production line efficiencies that could save money.
Lockheed Martin delivered 66 F-35 Lightning II aircraft in 2017. In 2018, the goal is to deliver a total of 91 aircraft to the US and partner nations; with 85 aircraft to be delivered from the Fort Worth, Texas production line, two aircraft from the Italian production line and four aircraft from the Japanese production line. Lockheed had delivered 265 planes to US and international customers at the end of 2017.
The price of the F-35 has fallen in recent years as production has ramped up and efficiency has improved, but the Joint Program Office is pushing for the price to fall further. The flyaway cost of the USAF’s F-35A fell to $94.6 million in Lot 10 of low-rate initial production, which was signed last year.
Lockheed has committed to reduce the F-35A’s price further to about $85 million by Lot 13. However, Lockheed chief financial officer Bruce Tanner said in 2017 that his company’s ability to hit the $85 million target could be in jeopardy if the DOD didn’t find additional production efficiencies and implement multiyear buys.