F-35 Upgrades See Costs Surging by $2 Billion, GAO Says

(Bloomberg) -- A Pentagon project to upgrade the F-35 jet with new capabilities every six months has seen about $2 billion in recent cost growth and continued delays as the result of an unrealistic schedule, according to congressional auditors.

The Pentagon and Lockheed Martin Corp. haven’t been able to follow their plan for “Block 4” upgrade work on the next-generation fighter, the Government Accountability Office said Thursday in a new annual report on the almost two-decade, $398 billion program.

In addition to not meeting timeframes they established for the upgrades, Lockheed and the Defense Department haven’t updated their estimates for future deliveries of the stealthy jet to reflect earlier delays in completing work.

“The F-35 program is more than three years into Block 4 development, but it has not delivered new capabilities as planned,” the agency said in its report. The current schedule, “as planned, is not based on the most recent data available and is not achievable.”

According to the report, GAO auditors found software defects weren’t being caught before they were installed on aircraft and that it was taking longer than planned to develop each new capability. The agency recommended that the Pentagon revise the schedule to reflect Bethesda, Maryland-based Lockheed’s actual progress.

‘Routinely Underestimated’

“The program routinely underestimated the amount of work needed to develop capabilities, which has resulted in delays, and has not reflected historical performance into its remaining work schedule,” GAO said.

Read More: Pentagon Uncertain When Often-Delayed F-35 Combat Test Starts

The Block 4 program has largely escaped public scrutiny while the F-35 continues to grapple with other issues. Those include a major delay in completing combat testing designed to evaluate whether it meets the original requirements developed in the early 2000s, uncertainty over when a decision authorizing full-rate production will take place and growing concerns about the jet’s roughly $1.72 trillion “life-cycle” costs, which include acquisition and maintenance and operations over decades.

The Joint Simulation Environment combat testing was supposed to occur in December but has been indefinitely delayed. That’s in part because in August the program office determined the simulator “did not fully represent F-35 capabilities and could not be used for further testing until fixed,” the GAO said.

The Block 4 upgrade program’s now $14 billion estimated cost is more expensive than many Army, Navy and Air Force acquisition programs. As a result, it represents another costly example of the defense challenges that President Joe Biden’s Pentagon will have to confront amid expectations of largely flat defense budgets in the year ahead.

In the report, Dyke Weatherington, an acting defense acquisition official, said the F-35 program office at the Pentagon “is currently assessing and updating” the Block 4 schedule “based on historical execution, budget and resourcing realities and insights derived from a recent independent review” and will issue a new schedule by June.

Laura Seal, spokeswoman for the Defense Department’s F-35 Joint Program Office, said in an email that the report “was completed with the F-35 program’s full cooperation and unfettered access to information. There were no surprises,” and “the items mentioned are well known to the JPO, the U.S. services, international partners and our industry team.”

Staying ahead of “our adversaries in the high-end fight is inextricably linked to our ability to deliver high-quality software to the F-35 air system” in a timely fashion, Seal said. “Today, software quality is missing the mark, which is driving increased cost and delays.” More than 620 aircraft have been delivered to date, 10 services in seven countries have declared initial operational capability; and six services from five countries have conducted F-35 operational missions, she added.

Lockheed Martin spokesman Brett Ashworth, in an emailed statement on Thursday evening, said the company last year had initiated a program-wide software assessment in partnership with the F-35 program office that “has made significant progress in identifying and addressing opportunities that provide quality products on time and on budget. We understand the importance of these efforts in ensuring the warfighter maximizes” the jet’s “unmatched, combat proven capabilities.”

Among the other issues highlighted in the GAO report:

• “Program officials did not identify nearly a quarter of all defects until they were already delivered to test aircraft,” according to the report.
• Lockheed Martin “recognizes that late discoveries are a problem and is working toward identifying and fixing defects earlier in the development process,” the GAO said.
• The Block 4 development cost estimate increased by $3.5 billion since May 2019. “However, over half of the increase since we reported last year -- $1.9 billion -- is net cost growth within” the program, the report said.

Some positive F-35 issues highlighted by the GAO:

• Despite well-publicized 2020 aircraft delivery delays caused by Covid-19 labor disruptions “and supply chain problems” such as parts shortages, other production metrics “slightly improved” last year, as “aircraft are taking less time to build, on average” and Lockheed “is spending less time on scrap, rework and repair.”
• Overall reliability and maintenance performance have improved in the last year as the program “was meeting or close to meeting 17 out of its 24 goals.”
• As of December, the Pentagon has identified alternative suppliers for 1,005 parts produced by Turkish companies. That search began after the U.S. expelled Turkey from the F-35 program for its refusal to back off its purchase of the Russian-made S-400 air defense system.
• Lockheed Martin spokesman Brett Ashworth in an email statement this evening said the company last year initiated a program-wide software assessment in partnership with the F-35 Program office that “has made significant progress in identifying and addressing opportunities that provide quality products on time and on budget. We understand the importance of these efforts in ensuring the warfighter maximizes” the jet’s “unmatched, combat proven capabilities.” **

©2021 Bloomberg L.P.