F-35 program head pressed on Trump call as fighter cost 'on track' to fall 15 percent

F-35 program head pressed on Trump call as fighter cost 'on track' to fall 15 percent
F-35 program head pressed on Trump call as fighter cost 'on track' to fall 15 percent

The Pentagon's F-35 program head told the House Committee on Armed Services on Thursday the price of the fighter is "on track" to reach as low as $80 million in 2019, which is lower than previously indicated.

Lt. General Chris Bogdan, the Defense Department's executive officer for the F-35 program, also confirmed in his testimony to the congressional panel that Boeing's CEO was on a phone call with President Donald Trump days before the inauguration. Analysts say the call was somewhat surprising given Boeing's F-18 Super Hornet fighter jet is a competitor to Lockheed Martin's F-35 aircraft.

"That strikes me as unusual," Morningstar defense analyst Chris Higgins told CNBC.

Even so, the analyst said conversations between acquisition officials and companies take place all the time. "It depends what the content of the conversation was," he said.

"It's important to understand that the discussions … we had were all pre-decisional," said Bogdan. "There were no decisions made during those conversations."

According to Bogdan, he and Trump had two separate phone conversations before the inauguration — Jan. 9 and Jan. 17 — that followed Bogdan and other military officers' December meeting with the president-elect at his Mar-a-Lago resort in Florida.

The calls were first reported by Bloomberg. Talking to reporters after the meeting, Bogdan said Trump's call, which Boeing's CEO listened in on, "was not inappropriate."

A Pentagon official told CNBC they had no additional comment.

The Trump call when Boeing CEO Dennis Muilenburg was in the room took place Jan. 17, three days before Trump's inauguration.

A Boeing spokesman emailed CNBC, saying the company had no comment about the call. Lockheed didn't respond to a request for comment for this story.

Thursday's hearing was intended to provide an update on the F-35 program. Bogdan's comments followed a question about Trump directly calling the program director, a move that was a sort of "break in the chain of command."

"It is my belief that President-elect Trump at the time was attempting to gain more information about the F-35 and its affordability," said Bogdan. "Trying to get more information about the F-35's capabilities relative to the Super Hornet [made by Boeing]. And trying to get more information about the presidential aircraft replacement program."

The presidential aircraft replacement program is the government's plan to buy new Boeing 747 Air Force One jets.

Bogdan maintained that the questions the president-elect asked later formed the foundation of F-35 review ordered by Defense Secretary James Mattis. He explained that the secretary's order includes looking at both the "affordability of the F-35 now and in the future" as well as the "complementary mix" of the F-35C and F-18 on the Navy's carrier deck.

Lockheed has been under pressure to reduce the costs of the F-35 aircraft, a program expected to cost more than $1 trillion over its life cycle to 2064 and beyond. The F-35 is the Pentagon's most expensive program ever.

Lockheed has already delivered more than 200 F-35 fighters. The total U.S. military buy on the F-35 aircraft is expected to 2,443 planes, and out of that the Air Force plans to procure 1,763 F-35A planes.

There also are foreign military partners participating in the acquisition of the F-35 stealth fighter. When including the foreign sales, there will be around 3,000 planes.

Earlier this month, Lockheed reached an agreement with the government for lot 10 of the F-35 fighter. The deal was for 90 F-35 aircraft, including F-35A variants priced at $94.6 million — a decline of 7.3 percent from the prior lot and the first time it was below $100 million to purchase.

"We believe we are on track to continue to reduce the price of the F-35," said the F-35 program director. Specifically, he said in fiscal year 2019 the F-35A model will cost between $80 million and $85 million.

If the $80 million price is realized, that would be about 15 percent below the F-35A cost in the latest production lot agreement.

Higgins, the defense analyst, said there needs to be larger block buys to get the production costs down.

"They've been saying $85 million is kind of the target they're looking at for a fly-away cost on it," said Higgins. "So it's a little lower than they've been talking about."

Bogdan said the military plans to increase production lots significantly as part of what he termed the "largest ramp up in the program's history."

"The government-industry team remains laser-focused on driving the cost of buying the F-35's down. We continue to see lot-over-lot price reductions."

Back in December, Trump tweeted that Boeing should price out a "comparable" version of the F-18, a fourth-generation fighter, to the newer F-35 fighter. There are three different variants of the F-35 fifth-generation aircraft, the F-35A for the Air Force, the F-35B for the Marines and the F-35C for the Navy.

The F-35 has been a controversial program and plagued by cost runs, development and production issues over the years. Last fall, the Air Force grounded around a dozen F-35 jets when it found faulty insulation in fuel pipes.

Bogdan said the issue with deteriorating insulation was resolved on the F-35A. He added that aircraft deliveries are recovering and will be back on production schedule by this summer.

Several other senior military officials testified that the U.S. military needs the F-35 more than ever.

In testimony at Thursday's House hearing, Navy Rear Admiral DeWolfe Miller praised the F-35C's capabilities and said the fighter "will form the backbone of the Navy air combat superiority for decades to come."

Miller contended that the F-35C "provides unique capabilities that can't be matched by modernizing fourth-generation aircraft." Specifically, he cited the Lockheed plane's stealth technology and advanced integrated systems that "greatly enhances a carrier strike group's battle space awareness and survivability to prevail in a high-end conflict."

Similarly, Marine Corp Lt. General Jon Davis was effusive in his remarks about the F-35. He also said the Marine Corp needs the F-35 because of its aging fighter fleet in the field.

Said Davis, "I'm becoming increasingly convinced that we have a game-changer, a war winner on our hands. We can't get into those airplanes fast enough."

CNBC

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