Tuesday, September 27, 2011

Lockheed has a bad week; Japan considers its fighter jet optionsProvided by iPolitics Staff

It has been a month of mixed results for Lockheed Martin, maker of the F-35.

Last week, it announced that it remains eight per cent ahead of its plan in year-to-date test flights for the fighter jet. The company said in a news release that it remains “on or ahead of plan for 2011” on flight tests, even with a 15-day fleet stand-down in late summer, and various testing interruptions caused by adverse weather in the Southern U.S.

But this week, Lockheed issued some bad news: It’s laying off 540 employees in plane-making operations in three states. The cost-cutting is a response to the U.S. government’s decision to cut around $300 billion from its defence budget during the next decade.

Although the company has been touting its flight-test record, there is bad news from Down Under. Thanks to repeated delays in the Joint Strike Fighter program, Australian supplier Production Parts will be shutting down.

From the Canberra Times:

Sources close to Production Parts, a respected Melbourne Airport West business that employed 85 people, said the firm had spent up big on equipment needed to fill JSF contracts worth more than $40 million.


It had invested $6.25 million between 2008 and 2010, including $1.4 million on a German-made milling machine, and was contracted to make up to 12 different parts for the jet.

Workers manufactured the first of what was expected to be 1,500 high-compressor cases for the JSF’s Pratt and Whitney 135 engine late last year. Production Parts also held contracts for work on the second-string engine, the F136 being developed by Rolls Royce and General Electric.

Company managing director Peter Nicholls said the cancellation of that engine was a major factor when the firm went into voluntary administration last month. The strength of the Australian dollar and the slow-down in defence spending also contributed.

And, according to the Times, Lockheed Martin “stopped short” of guaranteeing work that would have been completed by Production Parts would be reallocated to other Australian firms.

Meanwhile, Lockheed is facing another challenge in the same hemisphere.

According to an article in the Financial Times, Japan is looking to purchase around 42 new fighters, and is considering a full competition between the F-35, the Boeing F/A-18 Super Hornet, and the Eurofighter Typhoon. The deal could be worth $6 billion, and would normally be destined for a U.S. supplier, but — as the FT points out — since the U.S. denied Japan the opportunity to buy its F-22 Raptor, it seems Japan is now rethinking its approach.

How about some speculation? Here’s DoD Buzz:

Here’s a scenario for you: Lockheed is still assembling the very last F-22s at its plant in Marietta, Ga.; it has said the no-kidding final fighter would roll off the line in November. If Congress acted quickly to lift the ban on foreign military sales of the Raptor, then Lockheed rushed over to Tokyo with a bid, it might check a lot of boxes: A Foreign Military Sales windfall for the U.S. and Lockheed; a newly strengthened security relationship with Japan; and a potential strategic game-changer in the Western Pacific, where China’s J-20 would not be the only fifth-generation game in town.

Japan will likely take China’s new J-20 into account when it makes its purchase, and that might give the F-35 somewhat of an advantage in the competition. However, Boeing has offered that Japanese contractors could build F/A-18 Super Hornets under licence if that ends up being the fighter of choice.

From Fox Business:

Phillip Mills, director of Boeing’s Japan FX Capture Team, said Japanese makers could supply about three quarters of Super Hornet components if Japan opted for the fighter jet.

There has been great interest in how much of next-generation fighter jet-related jobs will be outsourced to the Japanese industry, which has been battered by gradual but consistent shrinkage of the defence budget.

“If you came to the Boeing production line, everything you saw Boeing doing in St Louis would be available or is available for Japan industry to do,” Mills told Reuters in an interview.

© 2011 iPolitics Inc.

Lockheed Martin: Literally A Defensive Stock - Seeking Alpha

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Monday, September 19, 2011

The F-35 Price Flies Too High

September 19, 2011: The U.S. Department of Defense and the U.S. Air Force are trying to agree on what the new F-35 fighter will cost. The air force insists that it is $65 million each, while the Department of Defense says when all costs are included; it will be more like $111 million each. Another number being debated is how many F-35s will actually be produced. The air force assumes 3,162, but the Department of Defense is not so sure that many will eventually be built. Total development cost is now put at $65 billion, which comes to over $20 million per aircraft if 3,162 are built. Development costs for the new U.S. F-35 fighter-bomber has grown by more than a third over the last few years. The additional development costs are accompanied by additional delays. Current estimates are that the F-35 will enter service in another 6-7 years. The Department of Defense believes production and development costs will continue to rise, and that the number to be built will decline. Both trends increase the average aircraft cost. Based on past experience, the higher Department of Defense estimates are more likely to be accurate.

And then there are operating costs. Earlier this year, after months of contentious disagreement, the U.S. Air Force came around to agreeing with U.S. Navy claims that the F-35 will cost much more to maintain, rather than (as the F-35 promoters assert) less. It was over a year ago that the U.S. Navy, after nervously watching as the manufacturing costs of the new F-35C and F-35B carrier aircraft increase, concluded that these aircraft would also be a lot more expensive to maintain. It comes down to this. Currently, it costs the navy, on average, $19,000 an hour to operate its AV-8 vertical takeoff or F-18C fighter aircraft. The navy calculated that it would cost 63 percent more to operate the F-35C (which will replace the F-18C) and the F-35B (which will replace the AV-8). These costs include buying the aircraft, training and maintaining the pilots, the aircraft and purchasing expendable items (fuel, spare parts, munitions.) The navy concluded that maintenance alone would be about a third more.

The differences between air force and navy cost estimates came down to different methods of doing maintenance and calculating costs. The two services have, over the decades, developed different ways to use civilian maintenance services and stockpiling spare parts. Most navy warplanes operate from carriers, which is more difficult and expensive than from a land base. In effect, the navy was forced to become more efficient in order to afford operating expensive warplanes at all. But now the air force and navy have resolved a lot of these differences, and agreed that the costs of the "cheaper" F-35 are actually higher.

Like the F-22, which had production capped at less than 200 aircraft, the capabilities, as superior as they are, may not justify the much higher costs. The F-35, at least for the navy, is headed in the same direction. The navy can go ahead with the more recent F-18E, and keep refurbishing, or even building, the AV-8. The navy recently began examining the possibility of buying fewer F-35s, in the long run, and replacing them with combat UAVs, like the X-47B. Politics, and lobbying by the F-35 manufacturer, will probably keep the F-35 headed for fleet service, no matter what the cost.

The 31 ton F-35 is armed with an internal 25mm cannon and four internal air-to-air missiles (or two missiles and two smart bombs). Plus four external smart bombs and two missiles. All sensors are carried internally, and max weapon load is 6.8 tons. The aircraft is very stealthy when just carrying internal weapons.

Like the F-22 fighter, the F-35 is stealthy, and is stuffed with lots of new technology. Most (about 60 percent) of the F-35s built will be used by foreign nations. The rising cost of the F-35 brings with it reluctance to buy as many aircraft as currently planned. The success of smart bombs in Iraq and Afghanistan has also made it clear that fewer aircraft will be needed in the future. In any event, it's likely that F-35s will end up costing more than $100 million each.

Saturday, September 10, 2011

Arms companies fight over fighter moniker

An F/A-18F Super Hornet assigned to the Checkmates of Strike Fighter Squadron (VFA) 211 prepares to launch from catapult three during cyclic flight operations aboard the aircraft carrier USS Enterprise in the Red Sea in this U.S. Navy handout photo dated March 7, 2011. REUTERS/US Navy/Mass Communication Specialist Seaman Jared M. King/Handout

WASHINGTON | Fri Sep 9, 2011 7:03pm EDT

(Reuters) - A squabble among arms companies over what to call the world's most advanced warplanes could roil the competition for multibillion-dollar fighter contracts worldwide.

At issue is an esoteric term, "5th generation," to describe aircraft designed to dodge detection by enemy radar even when loaded with their weapons.

The term is applied first and foremost by aerospace experts to Lockheed Martin Corp's (LMT.N) F-22 and F-35 fighters, which are built to appear as small as a swallow on radar screens.

Boeing Co (BA.N), whose F/A-18 Super Hornet is set to compete against Lockheed's F-35 worldwide, has been keen to suggest that the "5th generation" tag overstates any real-world advantages of the F-35, also known as the Joint Strike Fighter.

"I think it's fair to say that the '5th-generation' terminology is a marketing terminology," Dennis Muilenburg, Boeing's chief executive for its defense business, told the Reuters Aerospace and Defense summit in Washington this week.

"We don't operate in a world today where it's an individual airplane against an individual threat," he said. "It's the combined forces and bringing all of those forces and their capabilities together."

Boeing, the Pentagon's No. 2 supplier by sales, is competing against Lockheed, the Pentagon's No. 1 supplier, and the Eurofighter GmbH consortium for a potential $6 billion contract for about 40 fighters in Japan.

Boeing's offering is the Super Hornet, which it calls a combat-proven strike fighter with "built-in versatility."

Eurofighter is offering its multirole "Typhoon." It was selected as a finalist along with France's Dassault Rafale in a potential $11 billion Indian competition for 126 fighters. The Europeans beat the Super Hornet and Lockheed's earlier-generation F-16.

"The 5th-generation classification for fighters is just a commercial slogan and an abused one," Marco Valerio Bonelli, a spokesman for Eurofighter, said in an email. "Scoring the Eurofighter Typhoon against the same 'admission criteria' as the 5th-generation club would produce a much higher" ranking than the F-35, he said.

Fighter competition stakes are huge, including national prestige, ties between countries' military establishments and high-paying jobs and know-how that can enhance a nation's industrial base.

President Barack Obama made a strong pitch for Boeing's Super Hornet in March during a meeting with Brazilian President Dilma Rousseff, for instance. France's Rafale and Sweden's Saab's Gripen are also competing.

Lockheed says the 5th-generation category is widely accepted by U.S. and allied defense leaders to describe "stealth," or radar-evading, fighter technology.

"In truth, I'd really rather not get into a debate like this," said Michael Rein, a Lockheed spokesman who provided quotes from U.S. leaders praising the F-35. It is meant to achieve air dominance on Day 1 of any war.

The F-35 is due to form the bulk of U.S. tactical air power in coming decades, the Pentagon's costliest acquisition at some $382 billion for 2,443 aircraft in three models being built for the U.S. Air Force, Navy and Marine Corps. Eight foreign co-development partners are due to buy another 750 F-35s.

Richard Aboulafia, a fighter market expert at Teal Group, an aerospace consultancy in Fairfax, Virginia, said 5th generation planes did have "identifiable qualities that are superior."

"But individual aircraft are becoming less important than the broader network of sensors and control systems," he said.

(Reporting by Jim Wolf; Additional reporting by Tim Hepher)

Wednesday, September 7, 2011

Canada stands firm on F-35s
as questions fly on price and production Provided by iPolitics Staff

“The government is basing its projections on a really unreliable number at this point, even in the best-case scenario.” “The F-35 is the only one that addresses the long-term need for the Canadian Forces.”
— Philippe Lagassé, University of Ottawa — retired Lieut.-Gen. George Macdonald

It’s been a turbulent summer for the F-35. Production delays and ballooning costs dog the Joint Strike Fighter program and are prompting participant nations to delay or reconsider their purchases. Canada, however, has never wavered.

In July 2010, Defence Minister Peter MacKay announced Canada’s commitment to buy 65 Lockheed F-35s. The decision has been under fire ever since.

The federal Conservatives are known for their many and varied press conference backdrops, but Peter MacKay had the help of a larger than average prop for his July 16, 2010 announcement that Canada would buy 65 F-35s.
CP/Adrian Wyld

Final unit cost is the No. 1 concern and a great unknown. Opposition parties and some of Lockheed’s competitors argue that the procurement process was neither fair nor open, but the government insists that only the F-35 meets such guidelines as survivability as set out under the Statement of Requirements for a next generation fighter.

The F-35 grabbed headlines last March when a report from Canada’s Parliamentary Budget Office suggested each plane could cost as much as $128 million — significantly more than the mid-$70 million the government had been touting. Not long after, the U.S. Government Accountability Office echoed the PBO estimate, also predicting a final price tag at more than $100 million per plane.

The cost discrepancy made news, as did other related issues during the federal election campaign, but then the F-35s dropped out of sight in Canada, despite persistent problems and news that other countries are reconsidering the program. Throughout, Canada has remained fully committed.

The lack of concern worries defence analysts like Philippe Lagassé, an assistant professor of Public and International Affairs at the University of Ottawa.

“Certain countries are asking questions that, it’s simply bizarre in my point of view, we’re not asking,” he told iPolitics. “The government is actually engaging in a fairly risky venture at this point.”

Rising costs

It was a summer of challenges for the F-35.

Lockheed Martin delivered two new test planes to Eglin Air Foce base (including the AF-9 CTOL variant), but weeks later a problem with the cooling system grounded the entire fleet. Lockheed has not said what’s wrong, only that a “permanent resolution is in the works.” Some of the planes, though not the two most recent deliveries, have since been cleared to fly.

This summer, a cooling problem grounded the entire fleet of F-35s, like the one seen here arriving at Eglin AFB, July 14, 2011. Photo: Angel DelCueto, Lockheed Martin.

The program is also chewing through money. In July, the U.S. Department of Defence requested an additional $264 million from Congress to cover production costs of the initial 28 F-35 jets. In addition it asked for $496 million to pay for overruns on three production lots. John McCain, Arizona senator and ranking member of the armed services committee, blasted the Pentagon and vowed to oppose the request.

That same week, Joe Dellavedova, spokesman for the Joint Strike Fighter program office, told Aviation Week that the additional costs for the first three lots were likely to be around $918 million, plus $136 million for modifications. In all, the total overrun would be just over $1 trillion.

The news came in the face of partisan wrangling over the debt ceiling deal, which will see $350 billion cut from defence budget during the next decade. Analysts have already identified the F-35s as a possible place to start cutting.

Meanwhile, Australia, a signatory nation to the JSF development Memorandum of Understanding, has put off its final decision on its purchase of as many as 100 F-35s. The delivery for the original 14 planes it committed to buy has been delayed three years until 2014. In the meantime, Australia purchased 24 Boeing F/A-18 Super Hornets and is contemplating buying more in place of the F-35.

The Canadian government continues to insist its $9 billion will pay for 65 aircraft, along with related weapons systems, supporting infrastructure, initial spares, training simulators and contingency funds.

Cost is related directly to the number of planes produced and sold. While Canada plans to buy when production is high and prices are low, production delays will influence when it gets its planes.

Earlier this month, Julian Fantino, associate minister of National Defence told CBC’s Power and Politics that the government is “mindful of ensuring that the taxpayer nickel is spent in a most efficient, effective way.”

He added, “our government has committed and we are committed to ensuring that our men and women serving in what now is the Royal Canadian Air Force are given the tools and the equipment they need to do the jobs that we require them to do.”

The comments are consistent with Conservative messaging since the purchase was announced. Those who challenge the plan are told that anything less will put Canada’s armed forces at risk.

During the federal election campaign, the Conservatives insisted the F-35 is “a necessary and responsible investment to re-equip Canada’s air force and to strengthen Canadian sovereignty.”

A spokeman for Fantino’s office made the same point in a recent interview.

“The F-35 is the best — and only — aircraft that meets Canada’s operational requirements,” wrote Chris McCluskey in an email. “Canada’s participation in the Joint Strike Fighter program ensures Canada is giving our Canadian Forces the equipment they need to protect our interests well into this century.”

Lagassé says the government has made assumptions about the number of planes that will ultimately be produced. If the number falls, it will likely affect the unit price, he said.

Earlier this month, it emerged that the U.S. Department of Defense is considering cutting planes from the next low-rate production run if it can’t get $264 million to cover overruns.

Back to the drawing board?

Then-government House leader John Baird looks at a 150,000 pound thrust engine test facility model as he takes part in a press conference at MDS Aero Support Corporation in Ottawa on Jan. 11, 2011. In response to critics of the F-35 program's costs, the Conservatives have sought to highlight its benefits to Canadian industry.

“The government is basing its projections on a really unreliable number at this point, even in the best-case scenario,” Lagassé said. “There have been questions about performance and the ability of the plane to operate on schedule. It could be at least in the government’s best interest at this point to re-examine and hold a competition to see if another aircraft could be a better purchase on a number of levels.”

The first step would be to re-evaluate the Statement of Requirements for a new batch of fighters. A new SoR, says Lagassé, could establish modified performance criteria for industry to meet.

“You would then be in a situation where you could balance cost versus performance. That’s what we’re not doing; we’re not really looking at the trade-offs,” he said. “We’re simply assuming we want peak performance and therefore we need the best aircraft possible.

But retired Lieut.-Gen. George Macdonald says there has been a proper evaluation.

“The F-35 is the only one that addresses the long-term need for the Canadian Forces,” he told iPolitics. Only the F-35 can fuse data from its sensors with other aircraft while delivering survivability and interoperability, he says.

“The reality is that we’re going to buy an aircraft that will be in service for probably four decades,” he said. “You don’t want to start with something less than an advanced, capable platform.”

Lagassé argues that Canada should reconsider what it wants in its next fighter if only to ensure it does not short-change other defence services.

“I understand that no other aircraft can meet everything that the F-35 can. But does Canada or the Canadian Forces absolutely need to have that capability?” he asked. “If they might be able to make do with less, what kind of savings would you accrue from that, and where could that money go?”

Lagassé says these are the questions Canada ought to be asking.

While there is no guarantee looming defence budget cuts in the U.S. will directly affect the F-35 program, it is something Canada should to be aware of, particularly if the design and technological difficulties persist, he says.

Get it in writing

The government could tackle the issue by signing a contract, Lagassé says. In doing so, Canada would be able to negotiate penalties for delays or technological difficulties. It would also have a better sense of a delivery timetable — dates that will influence plans for the current CF-18s.

“The minute that you have a contract, you can also lock in the price,” Lagassé said. “While we’re waiting now without one, the price goes up, and there’s nothing that we can do.”

Macdonald concedes that if there are further delays Canada may need to extend the life of its current fighters. “They’re going to have to determine how they can keep the CF-18 fleet going for a bit longer and make sure there’s no capability gap.”

No doubt there is a contingency plan, he says.

But Macdonald disagrees a new contract is even an option. Each year, partner JSF nations submit a procurement request to the program office for aircraft quantities, support equipment and the like. That request, he says, is collated and the program office negotiates a contract with Lockheed Martin for a delivery date four years later. All the aircraft produced that year would then be the same price for all the partners, says Macdonald.

So there is no reason to sign a contract any earlier, he says.

“Trying to jump the gun or trying to lock in a price is really not part of the formula right now,” Macdonald said. “We get the best price there is when we get it.”

Canada’s deadline for its procurement request is October 2012, with the initial delivery four years later. It is still unclear when the planes will become operational.

The U.S. House Armed Service Subcommittee was told in March that the U.S. Air Force expects a two-year delay on the F-35’s operational capability. And according to Lockheed Martin, Canada may have to wait until 2020 before its planes are operational.

Lagassé says that before the deal is a fait accompli, Canada’s government and its opposition must determine what the F-35s will ultimately cost.

© 2011 iPolitics Inc.