Boeing and Lockheed Face Crisis of Confidence: Cost Growth Questioned by Congress - Page 2
The situation with the premier aircraft acquisition program, Lockheed Martin’s F-35 Joint Strike Fighter, is even worse. This past week the Defense Department submitted a routine reprogramming request to Congress in order to move money around in their budget to fund priorities. Part of this was to move $264 million to cover cost overruns in the production of the JSF. On top of that a further $450 is needed to be found in the JSF budget as well as costs on the first three production batches have increased over $700 million. McCain almost immediately tweeted that fact and called it “Disgraceful”. He and the Democratic Chairman of the SASC followed this up with a letter to the Defense Department asking among other questions what the bill would be if the JSF program was terminated.
That is an extreme reaction to the situation although the JSF program has a history of schedule delays and increased funding requirements that have seen the total cost balloon to hundreds of billion of dollars and the entry into service delayed by years. Lockheed, if the program really was cancelled, would lose one of their major contracts with a significant affect on earnings and revenues. At a minimum they are facing the possibility of paying themselves for much of the cost increases, especially on future orders, which would have a negative effect on their near term performance.
Programs in their early development and production such as the KC-46A and F-35 often have cost sharing built in to cover these kinds of issues. The problem these two program face is that Congress is not willing to keep sharing. They feel at a time when the defense budget will be reduced that these types of increases are difficult and will put pressure on the rest of the budget. They also put more blame on the contractors then the Government who may have caused requirement or testing changes that increase schedule and cost.Continued on the next page