The Air Force likes the F-35's capabilities and combat performance, but it's more expensive to operate than the service predicted and can afford. A new contract give Lockheed Martin a fresh chance to bring those sustainment costs down. Here, an F-35 readies for takeoff from Joint Base San Antonio-Kelly Field, Texas. Brian Rhodes/USAF
Photo Caption & Credits

Can a Service Contract Save the F-35?

Dec. 3, 2021

Chronically high operating costs might be tamed with a new deal.

The Air Force is pleased with the F-35’s performance in combat, and plans on it being the “cornerstone” of the fighter fleet over the next 30 years. The jet’s high operating costs —$36,000 per hour—threaten the program, though, and the Air Force only plans to buy minimal numbers of the fighter until those costs close on what was originally planned: $25,000, by 2025, in 2012 dollars.

A new sustainment contract between the F-35 Joint Program Office (JPO) and Lockheed Martin, inked in September, will give the company a chance to bring down operating costs over the next three years. If it can, it stands to earn even bigger contracts and be the sole-source provider of future F-35 sustainment services over decades. If it can’t, F-35 users could bring the sustainment work in-house, performing the work themselves, or potentially bringing in other contractors.

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There’s little doubt that operating costs are the central issue with the F-35. House Armed Services chair Adam Smith (D-Wash.) recently referred to the F-35 as a “rathole” because of its chronic sustainment issues. Air Force Chief of Staff Gen. Charles Q. Brown Jr. said that if F-35 sustainment costs don’t come down, the Air Force will either have to fly the fighter less often—reserving them just for “high-end missions”—or buy fewer of them. House Armed Services Readiness panel chair John Garamendi (D-Calif.) promised no typical budget boost in F-35 purchases, because buying more jets was just forcing users to spread limited spare parts over too many airframes.

High operating costs are “an existential threat to the F-35.”

Lt. Gen. Eric Fick, Joint Program Office director

The Government Accountability Office (GAO) issued two reports on F-35 sustainment so far in 2021: “Enhanced Attention to and Oversight of F-35 Affordability Are Needed,” in April, and “DOD Needs to Cut Billions in Estimated Costs to Achieve Affordability,” in July.

In the July audit, the GAO advised the Pentagon—and Congress—that buying more F-35s should be “contingent on DOD’s progress” in constraining F-35 operating costs.

“There’s a substantial and growing gap” between what the services thought they’d be spending on F-35 operations and what they actually are, the GAO said. By 2036, it expects that gap to widen to $6 billion without corrective action soon. For the Air Force alone, the gap will be $4.4 billion in 2036.

Joint Program Office Director Air Force Lt. Gen. Eric T. Fick acknowledged that high operating costs are “an existential threat to the F-35.”

But Fick, in a wide-ranging discussion with reporters in September, also said the F-35 is already close to “delivering fifth-gen capabilities at high-end fourth-generation costs.” By comparison, the F-15EX and F/A-18E/F cost about $29,000-$30,000 per hour to operate, and the new sustainment contract stipulates that Lockheed will get F-35 operating costs down to $30,000 per hour by the end of 2023. The Air Force wants the F-35 hourly cost comparable to the F-16, historically around $22,000 per hour, but in fiscal 2020 it was up to $27,000 per hour.

The $30,000 per hour goal by 2023 is for the entire air vehicle, including the Pratt & Whitney F135 engine, Fick noted, but sustainment contracts with Pratt are negotiated separately from Lockheed Martin. The grand number includes “a placeholder for propulsion,” he said.

What are the main problems? Garamendi zeroed in on a big one: The F-35 fleet is growing all the time, but vendors have a limited capacity to make parts for jets both on the production line as well as those in the field. Because of different variants and configurations of the F-35, there are several versions of many parts. The COVID pandemic has slowed production of jets and parts alike, and the F-35’s stealthy materials have needed more upkeep than anticipated.

Another is the Autonomic Logistics Information System, or ALIS. It was meant to automatically sense and schedule needed maintenance actions, but it’s had teething problems, is hosted on obsolete hardware, and suffers from false alarms driving unnecessary parts changeouts. A successor system, ODIN, for Operational Data Integrated Network, is already taking over. 

None of this is news. Former Pentagon acquisition and sustainment chief Ellen M. Lord said in 2018 that “right now, we can’t afford the sustainment costs we have on the F-35. And we’re committed to changing that.”

The COVID pandemic slowed down production at the F-35 line in Fort Worth, Texas, seen here, and among the enterprise’s parts vendors. The jets have needed more upkeep and their stealthy coatings have required more attention than anticipated. Defense Contract Management Agency/Courtesy

Soon after, Lockheed Martin “table dropped” a Performance Based Logistics, or PBL proposal, on Lord’s desk, Fick said. Lockheed said the new approach—which would provide an agreed level of aircraft readiness and manage the fleet accordingly—would get the Air Force to its $25K by the 2025 target. It also said that achieving the target without a PBL couldn’t happen. 

“There was reluctance, particularly on the part of the services, to hand the keys over … to do all of the F-35 sustainment,” Fick said. Users were “unsatisfied” with the sustainment results up to that point, but are willing to explore Lockheed’s proposal, he said. 

Lord empaneled a working group headed by then-Navy acquisition executive James Geurts—who oversaw the F-35 program at that time—to “assess everything from a ‘tip to tail’ PBL” to annual maintenance contracts to find the right solution, according to Fick. The team included representatives from the Navy, Air Force, Marine Corps, a consulting group, the Office of the Secretary of Defense, operational experts, and others.

Skeptical of putting Lockheed completely in charge, the group looked for “something in the middle, where you can achieve most of the benefits” of a PBL “by focusing just on the supply chain management and demand reduction piece,” Fick explained. The rest could be “offloaded onto [an annual] companion contract.”

The task force created a memorandum of understanding signed by Geurts, then-Air Force acquisition executive Will Roper, Fick and Greg M. Ulmer, Lockheed’s then-F-35 program manager, creating the terms of the contract awarded in September. 

“We knew as a department that we did not want to be trapped into a bad deal … a bad PBL” that could be “weaponized” by Lockheed, Fick said. The “base year, plus two optional years” contract “puts us on a glideslope … in the right direction.”

It was a carrot and stick approach. The carrot to Lockheed was the prospect of many years of exclusive F-35 maintenance. The stick was that the company had to provide, before or at the same time a PBL deal is signed, “the provisioning and cataloging data” that would allow the services to organically take over F-35 sustainment if Lockheed didn’t perform, Fick said. The information is “the technical data associated with ordering the bits, parts, and pieces of the system—not full-up design data—that would allow an item manager to provide those … pieces to the organic depots.”

ALIS to ODIN

The F-35 program is transitioning the troubled Autonomic Logistics Information System—ALIS—to a new system called the Operational Data Integrated Network (ODIN).
The ALIS has “historically … been a trouble spot,” F-35 Program Executive Officer Lt. Gen. Eric Fick acknowledged. Two years ago, the plan was for a swift turnover from ALIS to ODIN, but now it will be more of an “evolutionary transition,” he said.
“ODIN has three parts,” he explained. “It’s about hardware, it’s about an integrated data environment, and it’s about software.” The hardware on which ODIN will be hosted is already being fielded and upgrades to ALIS are being hosted on it.
“Over the next 12 to 18 months, we will be flowing this new ODIN-based kit, or OBK, as we call it, to 14 different installations, replacing their legacy hardware with this new and improved ODIN hardware,” Fick said. The new gear is “90 percent lighter, 70 percent smaller, and about 30 percent cheaper” than the old, bulky ALIS equipment, he noted, while offering “substantially increased performance.”
The system will make the F-35 more affordable due to the “increased performance alone,” Fick said, because maintainers will spend less time keying-in codes and getting false alarms. The system shifts largely to barcode-type inputs rather than laborious entry codes.
This “should allow us, in time” to reduce the number of maintainers involved in ALIS, so they can work on the airplane, or, if they’re contractors, to “take them off contract entirely. So, we’re reducing that workload,” he said.
Fick said the Joint Program Office has established the National ALIS Support Center, where it’s consolidating system administrators “to help them adjudicate problems and challenges from the field to a centralized location,” rather than at various bases. The results so far have been “positive,” he said.
Software deliveries for ALIS/ODIN have also changed from “every two or three years” to “quarterly,” Fick reported. These are aimed at “reducing user pain points,” to make the system “more agile, easier to execute … less people, less time.”
The ODIN will “give us a quantum increase in our ability to support the fleet,” Fick said, while in the near term, “we’re … making ALIS friendlier and easier to use. Putting it on faster hardware is goodness.”

Originally, the F-35 program was a “TSPR” deal, or Total System Performance Responsibility; not unlike a PBL, but where Lockheed held all those data as its proprietary property.

“We’re using, really, the incentive of a PBL to help us get some decent pricing on the tech data required,” Fick observed, so that, at the end of the initial period, “the services and the department have an option” to go a different way.

“If it comes to pass that Lockheed really ‘kills it’ and we end up with great performance, then why would we not sign up for another PBL?” Fick asked. But if not, “then we have the data that allows us to do something different.”

That would most likely be an “organic approach,” Fick said, rather than an open competition with industry. Still, there are “some elements” that could be competed, he said. 

Fick cautioned that a PBL arrangement after the initial 2021 to 2023 annual options contract “is still not a done deal.” But if things go well in the first three years, the first PBL would run 2023 to 2027, and after that, the JPO would consider five-year agreements with Lockheed, he said. Also, Congress will have something to say about the approach, as will “other stakeholders.”

The JPO already regularly does a five-year “business case assessment” on the F-35, examining exactly such issues as the best way to contract for maintenance. In September, the most recent assessment was still in final draft, but provided a “conscientious examination” of the options, Fick said. 

Underlying the approach to the PBL is a desire for competition in what has been, thus far in the F-35 program, almost entirely a sole-source arrangement since Lockheed won the winner-take-all Joint Strike Fighter program in late 2001.

“I’m a strong supporter of competition,” Fick stated. “I think it improves the breed in a significant way. It drives supportability and responsiveness [with] a focus that a sole-source environment doesn’t.” He said the program is looking at other ways to “inject” competition into the F-35, but couldn’t be more specific. 

Fick warned that bigger costs are coming with the F135 engine that will severely challenge the F-35 enterprise to keep costs down.

“We do expect to see annual costs for propulsion sustainment to increase,” Fick said, explaining that “we are coming up on the first scheduled overhaul for many of the engines” in the 700-plus inventory of F-35s worldwide. “We will see a bit of a bump on the costs on the propulsion side” as those engines reach 2,000 hours of service.

Fick said that in September, 42 F-35s were down for engine parts, a number which has been fairly consistent in recent months, but he said that number is down a bit. The Air Force canceled some air show demonstrations of the jet to preserve training sorties.  

Amanda Glode, Pratt & Whitney’s director of sustainment for the F135, told reporters at a plant visit in October that engine costs will be going up “at the exact point the U.S. services and the entire program want the costs to be decreasing.” Pratt is meeting its contractual requirements that no more than 10 percent of F135s are down for maintenance or overhaul, but only just, at nine percent. The goal is six percent, and through much of the program, Pratt has achieved 4 percent, Glode said.

She also noted that planned investments in the F135’s depot at Tinker Air Force Base, Okla., were raided to pay for other needs, with the result that the depot is “five years behind, in terms of where it should have been based on the program design and architecture.”  

Even so, Tinker is accelerating the time it takes to fix engines. Glode said the target is for the depot to generate 40 power modules in a year, a goal that it will “significantly” exceed this year, after only generating 14 modules last year. The time needed to do a power module is also dropping from 200 days to 120. 

Pratt continues to make improvements to parts and materials that will keep the engines in service longer, Glode said. She noted a new fan blade coating that’s giving the engine greater resiliency against desert dust, specific to the Middle East, that degrades them with moderate exposure.  

1221 Tirpak Saving The F-35 Tinker
An F-35 takes off from Tinker Air Force Base, Okla., where the F-35’s engines are serviced by the Oklahoma City Air Logistics Center. Most F-35 engines are coming due for their first big overhauls, adding a major expense just when the enterprise is trying to reduce maintenance costs. Paul Shirk/USAF

Fick said policymakers should be cautious about how they approach reducing sustainment costs, even though he acknowledged they are “the place to go in looking for affordability” on the F-35. While Brown said the Air Force might fly F-35s less frequently to save money, there’s an equation there that may not be obvious, Fick warned.

There’s “cost per tail, per year” and “cost per flying hour,” Fick said, “and you have to look at those both, not just independently.”

To drive down cost per flying hour, “I do that by flying a ton,” he said, which allows amortizing fixed costs over a greater number of flying hours. But “that actually drives my cost per tail per year up, because I’m flying more; I’m burning more gas and using more parts.” Looked at another way, “I can reduce my cost per tail per year by flying less. … [By] offloading sorties to a simulator. But that will artificially drive my cost per flying hour up, because I’m now flying fewer hours and those same fixed costs are amortized over a smaller subset of hours.”

Only a “holistic view” of both of those approaches gives a realistic picture of how to “reduce cost in a meaningful way.”

It’s an equation that will become more important because, Fick said—echoing leaders of Air Combat Command—it will be increasingly difficult to practice certain tactics and operations in the open, where adversaries can see what’s happening. Only “in a synthetic environment” can F-35 pilots really practice their best tricks, away from prying eyes. 

The services have to get the Joint Simulation Environment (JSE)—a wargaming system for assessing weapon effectiveness in large force-on-force exercises—working well with the F-35, he said. The F-35’s full-rate production declaration has been put off for two years largely because of delays in integrating the F-35 with the JSE.

“The whole reason the JSE exists is … we knew we couldn’t fly” the F-35 in the open “against the threats we saw off in the future.” To train against the most advanced threats, it must be done virtually, so “those are places where you might choose to offset open-air flight with some simulator work.”

He added that there are “some things you’ll never do in a simulator, and some things you’ll always do in a simulator. And you’ve just got to figure that out.”

The JPO, responding to the GAO’s July audit, said F-35 sustainment cost increases are not as dire as the GAO said. The true increase is about seven percent, in 2012 dollars, or $42.8 billion over the life of the program, and that these numbers were verified by the Pentagon’s Cost Assessment and Program Evaluation Office. That’s still a huge amount, but the JPO also said GAO’s projections may not come to pass. 

It noted that the Pentagon has decided to extend the end of the F-35’s service life from 2064 to 2077, and this has artificially “added 23 percent” to operating and sustainment costs. An increase of total aircraft to be bought, from 2,443 to 2,456, also added a half-percent to O&S costs, the JPO said, because planned flying hours over a 60-plus-year operating period have increased from 14.9 million to 15.6 million. That may well be sharply modified by how much is “offloaded” to simulators, Fick noted.