Updated: 1:58 p.m. ET.
FARNBOROUGH, UK—The price tag for F-35 Lightning II jets has been coming down for years, but that might not be the case in the production lots now being negotiated, Lockheed Martin officials said.
Lockheed will be “challenged” to keep the price of an F-35 under the rate of inflation in the next contract for lots 18 and 19, according to Greg Ulmer, head of Lockheed aeronautics.
“Inflation is real. The cost of raw materials has gone up. The cost of everything has gone up, so there is just inflation pressure in the system,” Ulmer told Defense One on the sidelines of the Farnborough Air Show.
The cost of an F-35 had been declining for years as Lockheed received large orders from the U.S. and its allies and the company found efficiencies in its production line. But inflation, the jet’s increasing capability and complexity, and the Pentagon’s proposed cut to the planned F-35 buy in the 2025 budget—the fate of which is still being considered by Congress—could result in a price hike in the next contract.
Lockheed needs to strike a deal for the next two production lots of F-35s before October or they will run out of money and have to put cash forward from the company’s pockets to keep the production line running, which the company warned investors about in its recent 10-K filing.
“We remain in negotiations with the U.S. government on the Lot 18-19 production contracts. Without additional contractual direction from the U.S. government, we will exceed the current contractual authorization and funding on the Lot 18-19 advance acquisition contract during the third quarter of 2024,” the filing said.
Ulmer couldn’t forecast when the deal will close, but said they’re aiming between now and the end of the year.
The deal struck for the last contract—for lots 15 through 17—had put the average flyaway cost of the Air Force’s F-35A variant at $82.5 million. The F-35B vertical take-off and landing variant came in at $109 million, and the carrier-based F-35C at $102.1 million. These numbers were slightly higher than in the preceding lots, but still lower in real terms.
“The F-35 Program is actively engaged in tri-party negotiations with LM and its supply-base to establish fair and reasonable pricing. In parallel, the JPO and LM are negotiating the terms and conditions associated with the Lot 18-19 Production Contract. We are working with Lockheed Martin to reach agreement as expeditiously as possible,” according to an F-35 Joint Program office spokesperson.
As negotiations continue over the next buy, Lockheed has started clearing a backlog of F-35s that has been piling up at its facilities since last year, after problems with developing new technology for the jet, called Technology Refresh 3, led the Pentagon to stop accepting the latest version of the stealth fighter.
The company plans to “unwind” by delivering about 20 aircraft a month—13 newly-built aircraft and seven of the jets that were in storage, Ulmer said, and it will take them about a year to fully clear the backlog.
“It’ll take us 12 to 18 months to unwind, and we’ll do it with intent and purpose. I call it go slow to go fast. Let’s follow the process, let’s do it safely, and let’s just make sure we deliver those airplanes over the fence,” he said.
But the new jets taken out of storage still won’t have the complete TR-3 upgrade. F-35 customers have agreed to accept jets with an interim “truncated” version of the package since a partial capability is better than nothing.
Lockheed expects the full, TR-3 combat capability to be ready next spring, Ulmer said, but there’s “always risk” to the schedule. The initial software is a “training capability” but contains 90 to 95 percent of the combat capability, so a lot of the weapons software is already in the jet, Ulmer said. Lockheed has to do more flight tests and lab tests to get the needed certifications, he said, and there’s more work to develop the digital aperture system, the six sensors that are mounted around the aircraft.
“There can be discovery. We can find something that we weren’t planning to find, and that may slow the process down,” Ulmer said.
Even though deliveries have resumed, the Pentagon is withholding money from Lockheed because the full TR-3 software isn’t ready, Air Force officials said this weekend at the Royal International Air Tattoo. Ulmer wouldn’t say how much is being withheld. During the year-long halt of TR-3 deliveries, the Pentagon withheld $7 million per jet.
Asked if payments will resume once TR-3 is fully done, Ulmer said “We’re working the terms and the conditions with the customer relative to how those withholds are released.”
The TR-3 hardware and software will lay the foundation for a suite of upgrades called Block 4. The F-35 Joint Program Office announced earlier this year that it’s developing a plan to “reimagine” Block 4 and define what are the capabilities that industry can actually deliver as delays and cost overruns have pushed some of the original capabilities planned for Block 4 out to the 2030s.
Since TR-3 was delayed, the program is starting Block 4 later than planned, “so now we’ve compressed the timeline that we were planning to complete, and we need to look at, do we have enough time to do the body of work that we plan from this point rather than previous starting point?” Ulmer said.
To handle the power needs of future Block 4 upgrades, the program also has to upgrade the engine and cooling system on existing jets. The engine upgrade is on track to be fielded in 2029, according to engine-maker Pratt & Whitney. And for the cooling system, Ulmer said Lockheed intends to hold a competition to overhaul the current system. Honeywell, which makes the current cooling system, is set to compete against RTX subsidiary Collins Aerospace, which would offer a new system, and both companies have already discussed their plans for a future competition.
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