Lockheed Martin Re-Jigs More F-35 Contracts to Help Reduce Costs

Lockheed Martin is restructuring more of its F-35 supplier contracts to try to reduce costs of the most expensive weapons platform in the world.

Many existing supplier contracts are only a year long, which creates more paperwork for the planemaker and its partners. Under the new multi-year Performance Based Logistics (PBL) contracts, suppliers are given greater cost certainty over a longer period of time. This enables them to make longer-term investments intended to pay off down the road—resulting in reduced costs and improved efficiencies. Lockheed Martin has not disclosed the length of the new contracts.

Recipients of the new contracts include BAE Systems, Northrop Grumman and Collins Elbit Vision Systems. Lockheed Martin claims those contracts are already paying off: a 2017 PBL contract with BAE Systems for the Electronic Warfare subsystem has improved the system’s global availability by 25 per cent.

“As the F-35 fleet expands, we are partnering with our customers and taking aggressive actions to enhance F-35 readiness and reduce sustainment costs,” said Greg Ulmer, Vice President and General Manager of Lockheed’s F-35 program. “The F-35 global supply chain is a key enabler to success, and we’re restructuring and streamlining several contracts with key industry partners to provide the long-term stability that will allow them to make investments, improve efficiencies and optimize their performance.”

Lockheed has also shifted maintenance contracts into 12 multi-year Master Repair Agreements designed to improve repair speed and capacity. Contract recipients include Honeywell, GE and Eaton.

As the primary contractor for the F-35, Lockheed Martin has delivered more than 350 of the cutting-edge fighter jets. But the company is under serious pressure from U.S. lawmakers and the Defense Department over the cost of the plane—the average price in fiscal 2019 is almost $109 billion—as well as unexpectedly high maintenance and operational expenses.

The restructured contracts are part of a larger effort to control costs. Lockheed claims to have reduced its portion of operating costs per aircraft by 15 per cent, and the labor on its production line by about 75 per cent, since 2015. The company aims to bring the aircraft’s price down to around $80 billion by 2020.

But the Pentagon believes more work needs to be done to reduce the F-35’s startling price tag. “They need to truly invest in their people and their capital…to increase the production flow and rate,” said Joint Program Office executive Mathias Winter. “The faster you go, the less it costs. [But] the faster you go, the less time you have to make mistakes.”