* Australian suppliers risk losses on F-35 delays
* $5.5 bln in contracts could be slashed if Australia
* Australia has said it plans to buy 100 jets, analysts
By Jane Wardell
AVALON, Australia, March 1 Some Australian
defence contractors say their involvement in building the
Pentagon's F-35 warplane has turned into a nightmare because of
its development setbacks, delays and now speculation that
Canberra will cut orders for the jet.
Contracts could be worth $5.5 billion for the 18 Australian
companies that are part of the F-35's global supply chain.
But among eight Australian contractors interviewed by
Reuters at an airshow near Melbourne this week, most were
critical of the $396 billion F-35 program.
"At this point, we'll be happy if we break even by the time
the program is over," said one supplier, who declined to be
The Pentagon program chief for the F-35 sought to convince
Australian lawmakers and generals this week to stick to a plan
to buy 100 of the jets, an exercise complicated by two
groundings of the plane this year and looming U.S. defence cuts.
Contractors were not optimistic about the prospects for
orders of the F-35, or Joint Strike Fighter (JSF), a futuristic
"It's been devastating," said a second Australian
contractor, who spoke on condition of anonymity because he
feared losing business from the project.
"The JSF business is moving to the right and shrinking," he
added, using industry jargon for when potential buyers shy away
from making early orders and wait until production is fully
ramped up in the hope the price will come down.
Big U.S. companies and the Australian government approached
local defense contractors just over a decade ago to help build
the world's most expensive combat aircraft.
Australia, a close American ally, is one of eight partner
countries helping the United States fund development of the
It is also one of the largest foreign customers, with plans
to buy up to 100 F-35s to replace its ageing fleet of Boeing Co
F/A-18 Super Hornets and already retired F-111 strike
bombers, at a cost of A$16 billion ($16.38 billion).
That status gave Australian companies a leg-up in the
warplane's development program since contracts are linked to
orders. The prime contractor is Lockheed Martin Corp
with Pratt & Whitney, a United Technologies Corp unit,
building the engines.
But defence analysts predict Australia might end up buying
only 50 to 70 of the fighters given Canberra is expected to
decide in June to double its fleet of Super Hornets to prevent a
frontline gap until the F-35 is delivered later in the decade.
The Australian companies are supplying parts ranging from
wing components to cockpit technology. The eight contractors all
said they did not know how many planes Canberra would order.
Steve O'Bryan, Lockheed Martin vice-president for F-35
business development and customer engagement, said Australian
companies were entitled to $5.5 billion of work over the life of
the program, based on current orders for the partner countries
that include 2,443 aircraft for the United States.
O'Bryan said that could rise by another $2.5 billion based
on recent and anticipated orders from Israel and Japan.
"Taken over the life of the program annually, that's around
13,000 direct and indirect jobs," O'Bryan told reporters at the
airshow, where the F-35 and its problems were one of the hottest
But the agreement with partner countries cuts both ways. If
orders drop, so too does the business directed to each nation.
The cost of picking up the extra Super Hornets will almost
certainly force Australia to cut its F-35 purchases, defense
That would follow Canada's announcement in December that it
could cut plans to buy 65 of the F-35s, a scaling-back of orders
by Italy and a two-year delay in purchases by Turkey.
The F-35 program has suffered a string of problems since
Lockheed Martin was granted the development contract in 2001.
Software glitches, engine problems and parts malfunctions are
among the issues that have grounded test flights numerous times,
most recently last week, and blown out both the project's cost
An email from Air Vice-Marshal Kym Osley, program manager
for new air combat capability for the Royal Australian Air
Force, to Australian supply companies in late January
acknowledged the many problems plaguing the program.
In the email, which was seen by Reuters, Osley wrote that
media reports on a U.S. Defence Department assessment of the
program had a "more negative tone" than the U.S. Joint Program
Office in charge of the project would like, but acknowledged the
reports were generally "in line" with reality.
Tensions between the Pentagon and its main contractors have
also burst into the open.
At the airshow on Wednesday, the Pentagon program chief for
the F-35, U.S. Lieutenant General Christopher Bogdan, slammed
Lockheed and Pratt & Whitney, accusing them of trying to
"squeeze every nickel" out of the U.S. government and failing to
see the long-term benefits of the project.
SOME SUPPLIERS IN LUCK
Some Australian suppliers said they could channel funds
invested in planned production for the F-35 into other projects.
Chemring Australia, a unit of British-based Chemring Group
Ltd, which is manufacturing air-launched expendable
countermeasure flares for the F-35, has invested A$35 million in
a facility outside Melbourne to produce the flares.
Production of the F-35 flares is not expected to begin until
the last third of this decade while Chemring is still making
flares for the F/A-18 Super Hornet, the Australian government's
alternative purchase to the F-35.
"We are not seeing yet any adverse effect from the
Australian position," said Giles Willoughby, business
development manager at Chemring. "For us, it's the export
opportunity we will lose."
Others remain confident in the program.
"I think the JSF will be very successful," said Ari
Vihersaari, Vice-President of Global Business Development at
Quickstep Holdings Ltd, which makes the composite used
by BAE Systems to build the vertical tailing.
Quickstep has invested A$10-11 million so far in equipment
linked to the JSF program, which it joined in 2008, around the
time the program schedule was restructured to build in funds and
time for further delays.
Quickstep expects the program to generate revenues of up to
A$700 million over the next two decades.
"The offer was very tempting for us and well within our
capability," Vihersaari said.