* Cost/plane seen over 50 pct higher than nine years ago
* Cost growth comes despite efforts to reform program
* Air Force to formally notify Congress, begin review
(Adds 'too big to fail' in 3rd paragraph, Lockheed and GAO
By Jim Wolf
WASHINGTON, March 11 The average cost of
Lockheed Martin Corp's (LMT.N) F-35 Joint Strike Fighter, the
Pentagon's costliest arms purchase yet, will soar more than 50
percent above what was projected when its development began
nine years ago, the Pentagon's top arms buyer told Congress.
The U.S. Air Force is set to formally notify Congress that
the program has crashed through a key cost-containment
threshold that will force a thorough review, Ashton Carter,
undersecretary of defense for acquisition, said on Thursday.
But the net impact of such a notification may be minimal
since the program is widely said by U.S. officials to be too
big to fail. Washington has no other way to replace aging
warplanes like Lockheed's F-16 and the program is a linchpin of
fighter modernization for several U.S. allies.
The cost blowout has occurred despite a restructuring
announced by Defense Secretary Robert Gates in February to keep
the program on track, including adding 13 months and $2.8
billion to the development phase.
"The JSF program has fallen short on performance over the
past several years," Carter told the Senate Armed Services
Committee. He said the Defense Department planned to
aggressively manage it over coming years as it goes from
development and testing toward full production.
Affordability was supposed to be a hallmark of the F-35,
which is being built in three versions for the U.S. Air Force,
Navy and Marine Corps; eight overseas co-development partners;
and other projected foreign buyers.
Senator Carl Levin, chairman of the committee, said the
cost growth could have significant implications for the rest of
the Pentagon's multibillion-dollar acquisition programs and for
its budget as a whole. The United States alone is scheduled to
buy more than 2,400 F-35s, the backbone of its air combat fleet
for coming decades.
"People should not conclude that we will be willing to
continue... strong support without regard to increased costs
coming from poor program management or from lack of focus on
affordability," the Michigan Democrat said.
Carter said he expected Air Force Secretary Michael Donley
to notify Congress of the cost-containment breach formally
under a law known as Nunn-McCurdy within days.
If unit-cost growth tops 25 percent, Nunn-McCurdy requires
the Pentagon to justify continuing the program based on three
main criteria: its importance to U.S. national security; the
lack of a viable alternative; and evidence that the problems
that led to the cost growth are under control.
In 2001, when the development began, the F-35 procurement
cost had been projected to be $50.2 million per aircraft in
base-year 2002 dollars.
Pentagon estimators, based on a projected procurement of
2,443 aircraft, including all variants, now expect the average
price to range from $80 million to $95 million in 2002 dollars,
said Christine Fox, director of cost assessment and program
evaluation for Defense Secretary Robert Gates.
The eight U.S. co-development partners are Britain, Italy,
the Netherlands, Turkey, Canada, Australia, Denmark and
Israel has begun a process that could lead it to buy 75
F-35s. Singapore is also mulling a purchase, but cost growth
could eat into overseas sales, to the benefit of rival fighters
from Europe, Russia and China.
Completing development and approving full-rate production
is now expected in April 2016, about 2-1/2 years later than
planned in the baseline program approved in 2007, congressional
auditors told the committee.
In addition, the Government Accountability Office said
there was a "substantial risk" that the program would fail to
deliver the expected number of aircraft and required
capabilities on time, despite the restructuring.
Carter said initial operational capability was now set for
2012 for the U.S. Marine Corps version and 2016 for the Air
Force and Navy models.
Lockheed Martin, the Pentagon's No. 1 supplier by sales,
said F-35 production trends showed significant improvement,
indicating aircraft deliveries will be back on schedule in
The three most recent aircraft loaded into production
tooling are now on schedule, said Jeffery Adams, a company
spokesman. "We are committed to delivering our airplanes on
(Reporting by Jim Wolf; Editing by Tim Dobbyn)