Pentagon sees "sufficient" progress to boost FY15 F-35 output


By Andrea Shalal-Esa

WASHINGTON, Oct 29 (Reuters) - The Pentagon this week saidthe Lockheed Martin Corp F-35 program had madesufficient improvement to plan for higher production in fiscalyear 2015, but contract awards would be tied to progress on thefighter jet's software, reliability and other issues.

"Program progress is sufficient for the department to budgetfor an increase in the production rate in fiscal year 2015,"Frank Kendall, undersecretary of defense for acquisition,technology and logistics, wrote in a memorandum dated Oct. 28and obtained by Reuters on Tuesday.

"Award of higher production rates will be contingent oncontinued program progress," he wrote in the memo. He cited theneed for progress in software development, improvements in acomputer-based logistics system that is behind schedule, andresolution of several previously identified design issues.

The jet's reliability is also not growing at an acceptablerate, he said in the two-page memo.

The $392 billion F-35 Joint Strike Fighter, the Pentagon'sbiggest arms program, has seen a 70 percent increase in costsover initial estimates and repeated schedule delays, but U.S.officials say the program has made progress in recent years.

Lockheed is developing three models of the new radar-evadingwarplane for the U.S. military and eight countries that helpedfund its development: Britain, Canada, Turkey, Italy, Norway,Australia, Denmark and the Netherlands.

"Success on the F-35 requires progress in all aspects of theprogram, and I am concerned that three areas in particular needadditional attention: software development ... reliabilitygrowth and ALIS (Autonomic Logistics Information System),"Kendall wrote.

He said work on the final version of the software, known as3F, was a particular concern since it was essential to achievingthe desired combat capability of the F-35, and was runningbehind schedule.

He said the magnitude of the production increase in fiscal2015, which begins Oct. 1, 2014, would be determined by DefenseSecretary Chuck Hagel as the Pentagon finalizes its budgetplans.

Lockheed expects to deliver 36 of the plans in 2013. Currentgovernment plans call an increase in F-35 production to 45 jetsin the eighth production batch, a deal the government expects tonegotiate early next year.

Those plans call for production to increase to 70 in theninth batch of jets, of which about half would go to Britain andother foreign buyers. The Pentagon plans to award Lockheed apreliminary contract to start buying some materials for thoseplanes later this year or early next.

In the memo, Kendall told program officials to prepare byNov. 15 a range of acquisition options for that ninth batch ofjets that would include "strong, event-based criteria andfinancial incentives" for Lockheed and engine maker Pratt &Whitney, a unit of United Technologies Corp.

He said he wanted a range of options given uncertainty aboutfuture U.S. budget levels, and to "provide a linkage betweenprogram performance and production quantities."

Kendall said he planned to "provide strong financialincentives to LM and P&W to complete development and drive downcost in both production and sustainment."

The memo also ordered the Pentagon's top official forsystems engineering to complete an independent assessment of themanufacturing risks associated with increasing production byNov. 15.

Kendall also asked the head of the Cost Analysis and ProgramEvaluation office to finalize a new estimate for the cost tooperate and maintain the fleet of F-35 jets over the next 55years as part of the fiscal 2015 budget submission.

The CAPE's previous estimate was $1.1 trillion, but thePentagon's F-35 program office puts the cost at $857 billion.

Kendall said the production costs were under control andcoming down in line with projections, and progress in thedevelopment program had been close to plan.

Projected costs for operating and maintaining the plane werealso decreasing, but further improvements were needed, the memosaid.

It was also critical for the program to start follow-ondevelopment to meet the needs of the U.S. military and itspartners to deal with emerging threats, the memo said.

Lockheed had no immediate comment on the memo.

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