F-35 Spare Parts Funding at Risk as Pentagon Seeks Data Rights

(Bloomberg) -- The House panel that approves defense spending intends to withhold half of next year’s funding for F-35 spare parts until the Pentagon and Lockheed Martin Corp. agree on the sale of technical data for spare parts to improve the tracking of items and allow purchases from other suppliers.

Struggling to resolve spare parts shortages and bottlenecks for the fighter plane worldwide, the Defense Department this month requested that Lockheed offer a proposal to sell it cost and technical data rights to the parts. That would give the Pentagon the ability to seek its own suppliers for parts or even produce some at its maintenance depots.

But the panel said the department has yet to hear back from Lockheed, the No. 1 U.S. defense contractor.

With the issue unresolved, the House Appropriations Defense subcommittee said it will only allow spending of $364 million of $728 million requested for Navy and Marine Corps jet parts in fiscal year 2020 until the Pentagon has “received an adequate cost proposal” from Lockheed.

“I assume Lockheed Martin will fight this as consensus growth expectations for the company include a healthy increase in revenues from sustaining the F-35 fleet,” said Byron Callan, a defense analyst with Capital Alpha Partners. “If the government gets data rights they can compete spares and software or do some of this at their own depots and software labs.”

The F-35 parts restriction is in a report by the panel expected to be released on Monday. It was included in a draft obtained by Bloomberg Government.

The Pentagon’s inability to provide adequate spare parts for the F-35 has hamstrung the jet’s operations around the world, the Government Accountability Office reported last month. With a backlog of 4,300 parts for F-35s, the supply chain issues meant that the planes couldn’t fly almost 30% of the time during a seven-month period last year, according to the GAO.

Data Rights

The full House Appropriations committee is expected to adopt the panel’s bill and its report as soon as Tuesday. Senate appropriators have yet to act on their version of the spending measure for the year that begins Oct 1. A Senate Armed Services subcommittee is likely to review the parts provision this week as it draws up the companion defense policy bill. The parts provision is likely to be contested by Bethesda, Maryland-based Lockheed, analysts said.

Possessing the data rights “would put pricing pressure on Lockheed Martin,” said Richard Aboulafia, an aerospace analyst with the Teal Group. “There are other challenges to doing this, but just getting access to the data rights would be a big first step.”

The House panel said until a request from Lockheed is submitted “it lacks full confidence” the $728 million “will be used efficiently.” The panel said acquiring cost and technical data is a “necessary step” to solving the issues GAO outlined.

Lockheed spokeswoman Carolyn Nelson didn’t have an immediate comment on the House panel’s proposal.

©2019 Bloomberg L.P.