At $323 Billion, it was already the most expensive defense program ever, even before cost growth took the program value to $382 Billion. As costs have risen, the planned production volumes have decreased—from 3,000 to approximately 2,450 (not counting international sales). And the Pentagon just decided to delay 179 of those 2,450 aircraft. Frequent news stories and editorials critical of the program’s cost-growth, schedule delays and performance issues have led a National Defense Industrial Association blog to call it “a symbol of dysfunctional, overpriced Pentagon programs.” And that’s from a bona fide defense industry cheerleader.

When a test flight had to be cut short because of a fuel leak that resulted in an “in-flight emergency,” another erstwhile defense cheerleader, the Defense Industry Daily, opined that perhaps the Air Force’s “lofty rhetoric” should “be taken down a couple of notches”—because (in DID’s words) “Updating [USAF] doctrine to ‘maintain air dominance, 15 minutes at a time’ does not sound very convincing ….”

The Honorable Frank Kendall (Acting Under Secretary for Defense, Acquisition, Technology & Logistics) called the Pentagon’s decision to have the F-35 program enter production before flight testing was complete “acquisition malpractice” and said, “it should not have been done.” According to this Defense News story—

Kendall said that the Pentagon had made ‘optimistic’ predictions about the capabilities of design tools, simulations and modeling to build a fighter that would breeze through test flights without problems. ‘Now we’re paying the price for being wrong,’ Kendall said.

Problems are cropping up on all three variants of the F-35 that would typically be expected in any highly ambitious next-generation fighter program, he said. ‘We didn’t model everything as precisely as we thought,’ Kendall said. …

Kendall said there is a tendency to start production too early, adding that the F-35 is an ‘extreme example.’ Barry Watts, an analyst at the Center for Strategic and Budgetary Assessments in Washington, D.C., agreed with Kendall’s assessment. ‘My understanding is the amount of concurrency on this program is as great as or greater than any past program,’ he said.

Watts, who has been to Lockheed’s Fort Worth, Texas, plant, described long lines of F-35s already being built. ‘Most of those, if they’re going to be operational airplanes eventually, are going to have to go back and have a bunch of changes made to them,’ he said. ‘That drives up cost and delays things.’

It’s not just operational issues that plague the program. The Defense Department has implemented “payment withholds” on the Lockheed Martin Fort Worth F-35 Prime Contractor facility. (And that’s after not paying out $614 Million in budgeted award fees for the development phase of the program.) Since the facility’s Earned Value Management System was “decertified” two years ago, the DOD felt it could no longer rely on Lockheed Martin to provide accurate cost and schedule performance information, and thus started decrementing program payments by two percent until LockMart’s EVM System can pass an audit.

If the foregoing wasn’t enough to cause migraines, POGO has reported a “slew of problems” with the aircraft, and ex-POGO Investigator Nick Schwellenbach has reported (on his new blog at Time.com) that the DOD Inspector General is performing a review of the program’s quality management system. Schwellenbach’s blog quotes the DOD IG as saying that, “the assessment will focus on conformity to specified quality management system(s), contractual quality clauses, and internal quality processes and procedures.”

Over at Federal Times, author Lawrence Korb (of the Center for American Progress) asked who will be held accountable for “F-35 program mismanagement”? Korb wrote—

In any profession when there is malpractice, the person or persons who commit the offense are held accountable. They lose their jobs or their licenses, or resign from sheer embarrassment.

But this is apparently not the case in the military-industrial complex when it comes to the F-35 Joint Strike Fighter, the most expensive program in the history of the Pentagon, whose unit costs have risen from $69 million to $159 million and whose initial operational capability has been set back at least five years. …

Lockheed's most recent contract for building 32 F-35 jets overran its target cost of $3.46 billion by $245 million, or 7 percent.

As a result of the continuing problems with the F-35, Leon Panetta, Gates' replacement as Defense secretary, along with Carter and Kendall, have made a ‘management decision’ to slow production of the F-35 over the next two years. Nonetheless, Lockheed will receive $9.2 billion in the fiscal 2013 budget to build 29 planes, more than $300 million per aircraft. If anything, this will increase the cost, drive up profits for Lockheed, and keep Carter and Kendall managing this program and all the other weapons programs.

So much for paying the price for malpractice.

Taking a less incendiary approach to the question, the writers at Aviation Week & Space Technology recently addressed the topic of “Why Major Acquisition Programs Fail”. The authors wrote—

Kendall—a veteran of procurement politics and management—remarked than none of the problems he had seen during the Reagan administration have been solved, and he joked that acquisition has two main problems: ‘planning and execution.’ …

The Pentagon’s director of operational test and evaluation, Michael Gilmore, made … clear at a conference last year {the point that Pentagon planners know about program problems well ahead of time]: ‘Most of the time, when unrealistic requirements are promulgated, there are numerous people who know that they are unrealistic, so it’s not a case of their being not fully understood.’ The problem, Gilmore continued, is that there are ‘incentives to promise to deliver revolutionary capabilities quickly at low cost.’ …

… most military procurement systems reward companies that underestimate the cost of new programs. The first reward is winning the program, and the second is higher revenue as a result of overruns under development contracts that are cost-plus. (Development costs do overrun in the non-defense world—the Boeing 777 and 787 and Airbus A380 being good examples—but they are still small relative to the companies’ production revenue, so that even the 787 debacle has not threatened Boeing’s survival or independence.)

Higher acquisition costs also drive company growth, as do higher-than-predicted operating costs, particularly this century as more maintenance work was outsourced to contractors. The failure of the Global Hawk Block 30, whose operating costs were higher than the aging, manned U-2, is the exception rather than the rule: Most operators accept the overruns and reduce capability in other areas. …

Military planners—and it is overwhelmingly military planners—want to obtain a capability they cannot afford, or which is at the risky end of the spectrum. To avoid scaring those assessing or paying the bills, they either under-estimate how much it will cost, or they fudge the risk of the project, or both.

If a program is ‘on budget,’ it is more difficult to cancel. If the paperwork looks good, then officials have to look elsewhere to find more funding to actually get the program up to the implied status. In turn, other projects are salami-sliced as billpayers, which then starts to imperil those programs. Alternatively, the original, badly estimated, badly specified program is stretched out yet further, a move that always costs more in the longer term.

Getting back to the F-35 program, the Defense Acquisitions Board (DAB) recently “recertified” the program after a Nunn-McCurdy Breach, but continuing cost growth and budget problems (especially related to a new cost estimate of $1 Trillion for program sustainment costs) “might force the Pentagon to slow production down further or trim flight hours for aircrew”—according to this article at Defense News. The article reported—

Because of the way sustainment costs are calculated, affordability is still a problem, and that might mean that the number of aircraft bought in the near term might be further truncated or that flight training hours are curtailed, [a senior defense official] said. The numbers are expected to fluctuate during the next five years.

Additionally, costs associated with military construction still have to be sorted out.

Eight nations other than the USA have contributed funding to the program. The initial program budgeting assumed sales of 3,100 aircraft to international partners. The eight partners included Australia, Canada, Great Britain, Turkey, Denmark, Holland, Norway, and Italy. In addition, both Japan and Israel have committed to the program.  

This recent Reuters story reports that “Britain has deferred to 2015 a firm commitment on how many Lockheed Martin Corp F-35 Joint Strike Fighter jets it will buy, adding to uncertainties over the multinational program.”

This recent article reports—

Defense Minister Giampaolo Di Paola said Italy would cut investment in the radar-evading new fighter, although he said the plane was ‘still an important commitment’ for the country's defense system. He gave no details, but Italian media reports forecast Italy would cut 40 warplanes from the 131 originally planned.

That same article added—

Canadian Defense Minister Peter MacKay repeatedly dodged a question on Tuesday on whether the government was rethinking its planned F-35 purchases, saying only that Canada was committed to buying aircraft that would aid its troops. … Turkey has halved its initial order for four planes, part of a larger order that it has not yet reduced, and Australia is thinking about changing the pace of 12 initial orders.

The issue yet to be faced is what happens if unit costs increase to the point that the aircraft become unaffordable—either for budgetary or for political reasons—by the international partners who have made commitments to acquire a certain number of aircraft? We alluded to this problem in a previous F-35 article, where we wondered whether LockMart might “find itself the builder of a white elephant fighter whose lack of economies of scale make the plane unaffordable for its international partners.”

So to sum it all up, these are clearly tough times for the Lightning II Joint Strike Fighter program. Navy Seals have a saying: “It pays to be a winner.” The Lockheed Martin program management team and its executives are learning what happens to the guy that finishes near the end of the pack. It’s not that the guy is a loser—not at all. After all, he finished and didn’t quit. It’s just that the guy isn’t a winner. Winners get to rest and recuperate, while non-winners have to work harder.

The F-35 program team needs to work a lot harder in order to make the cut.