Negotiations over the next batch of F-35 fighter aircraft have been running for 10-months now, with relations between the Pentagon and the defence manufacturer reported to be at an all time low.
The Pentagon have repeatedly made changes to the programme as it looks to cut cost and invite other companies into post-manufacture operations such as training, supply chain management and an autonomic logistics information system (a comprehensive tool for data collection, data analysis, decision support and action tracking IT system), which Lockheed Martin had exclusivity of beforehand.
The Pentagon has opened up supply chain functions “to take maximum advantage of existing public and private capabilities to achieve the balance between affordability and performance,” hosting a F-35 Sustainment Industry Day on the 14th and 15th November in Washington DC.
Annual F-35 orders were cut from 35 to 30 last year, with the US Department of Defence (DoD) slashing its spending and Lockheed Martin being unable to cap escalating costs, landing the DoD with a £441m bill as a result of overruns for the 28 aircraft during the first three order batches.
Plans are in place for 42 aircraft in 2013, with Reuters reporting that the two sides at the negotiating table are around £62m apart. However, with the US looking to reduce its defence spending, there could be reductions made to the project figures of 62 F-35 orders being placed in 2014, 81 in 2015 and 108 in 2016.
Michael Donley, Air Force Secretary, recently commented that spiralling costs would reduce the number of planes that the Pentagon orders, or lead it to implement delays or cut capability requirements.
BAE Systems’ stealthy fighter jet manufacturing facility opened in Samlesbury, Lancashire, earlier this year, the second part of a three phase expansion plan of the facility as the programme gears up for peak rate production by 2016.
BAE Systems’ has invested £150m in the F-35 programme at Samlesbury, which produces the fuselage for every jet, could feel the effects of the defence cuts in the US, which has plans to produce over 200 every year after 2016 – a deal which is far from firm.
However, there has been interest outside of America and Europe (such as South Korea), with Lockheed Martin looking to make up for lost demand in its traditional markets with new export customers.
Officials at the Pentagon ripped into Lockheed Martin’s management of the $245bn F-35 programme after growing tired of development problems, including issues with the £54m helmet contract it gave to Vision Systems International (the Elbit Systems and Rockwell Collins joint partnership) that led to it to making an additional order from BAE Systems.
However, with current prime contractor Lockheed Martin facing open competition on maintenance and operational service contracts that provide larger profit margins than the manufacture and sale of the F-35 itself, insiders are wary that its own suppliers and partners will start to feel the squeeze the Pentagon is administering from the top.
With BAE Systems having slashed its workforce across the UK after its strategy to focus on the US began to backfire following the recession, it could be left run
It now seems likely that negotiations will stretch to over a year despite higher officials now joining the table according to a recent report by Reuters.