WASHINGTON — By the top of the yr, a brand new and weird deal for the F-35 fighter′s spare parts may very well be in place — one that may flip the present supply model on its head.
If the proposed performance-based logistics contract works the way in which F-35 manufacturer Lockheed Martin has promised, it is going to save the federal government money, improve the supply of spare parts and provides the corporate greater flexibility on the way it assists repairs, equivalent to making it easier to repair a broken part without fabricating a brand new one.
Lockheed has for years sought a performance-based logistics, or PBL, contract for the F-35, albeit in a unique form. As a substitute of the standard transactional model in place today, through which a contractor is paid for specific parts or services, a PBL deal pays the contractor based on how well it meets expected performance outcomes.
The PBL contract now in negotiations, known as a “demand reduction” deal, could be a more limited version of the “tip to tail” agreement Lockheed first proposed in 2019, and would cover only the spare parts needed to repair the fighter. Lockheed’s original tip to tail pitch would have also covered support and sustainment activities, and judged the corporate on overall mission-capable rates, however the Pentagon balked. The military’s F-35 Joint Program Office told Defense News it opted to cut back the deal’s scope to 1 “that incentivizes [Lockheed] to take risks in areas they’ve full control over.”
The JPO said it’s on course to award the five-year deal to Lockheed by the top of this yr, if a study using data from the Pentagon’s Cost Assessment and Program Evaluation office verifies to Congress that a PBL deal would either reduce cost or improve readiness. A companion deal, for repairs and other nonmaterial sustainment support and services not covered by the PBL contract, would even be awarded at the identical time.
Officials from the JPO and Lockheed said in interviews with Defense News that a performance-based logistics contract may very well be higher for each parties than the transactional model, particularly by encouraging the corporate to scale back the demand for brand new spare parts for the F-35.
Ed Apollo, the JPO’s product support manager, said a PBL contract incentivizes Lockheed to speculate in recent processes and enhancements to make parts last more.
“The lower the demand, the more gravy for industry,” Apollo said. “The upper the demand, the less the [profit] margins. … That’s the No. 1 profit that we’re in a performance-based logistics contract.”
But some experts said the deal could carry risk; most notably, could a PBL contract handle a surge in capability required during a war?
Brad Martin, director of the National Security Supply Chain Institute on the think tank Rand, said some major programs have used PBL deals lately, including the Aegis weapon system and the P-8 Poseidon aircraft. But they’re not as common as they once were, he told Defense News, “they usually have loads of baggage.”
“It yields to the contractor an awful lot of discretion as to how they’re going to fill the orders and the way they’re going to take care of the demand,” Martin said. “Because of this, [the contractor] is ready of managing things as much as the purpose where there’s a crisis — after which when there’s a crisis, what are you going to do?”
Martin said PBL deals were more customary within the early 2000s, when the Pentagon sought to attain efficiencies of the sort typical in a non-public sector business. The department in 2001 identified PBL contracts as its preferred weapon system support strategy, in response to a 2008 Government Accountability Office report.
But they didn’t at all times produce the promised cost savings, Martin said.
He said a PBL contract would likely incentivize Lockheed to keep up a list of parts sufficient for normal, day-to-day operations, equivalent to flying standard patrols, training sorties or test flights.
But during a war that causes F-35s to fly significantly longer and harder, while possibly suffering wear and tear from battle, hard landings and more sorties, he said, it’s hard to say what type of supply inventory and pace could be required, and whether a PBL approach could sustain.
How would a PBL deal work?
The military has awarded Lockheed Martin multiple iterations of the present transactional contract to sustain F-35s because the fighter program’s inception, most recently in 2021. But for years this system has struggled to carry sustainment costs down and keep the plane’s readiness rates high enough. The common mission-capable rate for all U.S. F-35s is 56%, which falls below the 70% readiness rate the military wants for the Air Force’s F-35A, and the 75% goal set for the Department of the Navy’s F-35B and F-35C variants.
Today, Lockheed’s transactional sustainment contract spells out how most of the hundreds upon hundreds of spare parts needed to repair the planes can be available, Apollo said.
A supply chain-focused PBL contract would operate in a different way, Apollo added, as Lockheed wouldn’t must keep specific numbers of parts available. As a substitute, the corporate could be judged on whether those parts can be found when needed, or whether it may get those parts to the sphere inside a certain quantity of time.
Because PBL contracts are firm-fixed-price deals, he explained, Lockheed would bear the danger if it makes the fallacious call on how a lot of each part to have available.
“They still have to offer … the products, the performance, but in the event that they need to spend beyond the [firm-fixed-price], that’s all industry risk,” Apollo said. “The profit [to a PBL deal] is it incentivizes industry to scale back demand. A healthy supply chain system that we’re searching for is just not one where industry is incentivized to purchase more parts.”
There are several ways the JPO believes a PBL deal could push the contractor to scale back demand on parts. When the onus is on Lockheed Martin to maintain demand low, the corporate can be motivated to have parts that last more and to make process improvements that stretch out their time on the aircraft before repair or substitute, Apollo said.
For instance, he added, if an element leaks as a result of a failing seal, under a regular transactional contract the federal government could pay Lockheed to repair the issue by removing it — sending it to the unique manufacturer for repair before reinstallation.
But under a PBL contract, Apollo said, Lockheed would have a reason to pressure the subcontractor that makes that part redesign it to avoid frequent failures. With that redesign, “lo and behold, they reduce demand of that part by an order of magnitude, with some level of investment that was enabled by a firm-fixed-price PBL contract.”
Apollo also said a PBL deal offers industry more authority, accountability and ownership of the provision chain. In lots of cases, he added, it’s faster and cheaper to repair an element than making a brand new one. This may increase the “velocity” of the provision chain, he explained, and get parts on shelves quicker, which is financially advantageous for Lockheed.
While Lockheed would tackle more risk, company officials said the flexibleness of such a deal is value it, they usually have expressed confidence of their ability to chop demand for F-35 parts. Audrey Brady, Lockheed Martin’s vice chairman for F-35 global sustainment, said in an interview that about half the parts on an F-35 haven’t had to come back off the plane for repair or substitute, and that greater than 90% of parts on the common F-35 are staying on the aircraft longer than expected.
“Can we know exactly where the parts must be and when?” Brady said. “When [maintainers] go to succeed in for the part, is it available to them? That’s what we’ll be measured on.”
Wartime surge
But Rand’s Martin said a PBL’s design could give Lockheed an incentive to maintain its inventory — particularly of rare or expensive parts — near the minimum required. And the variety of spares a defense program will need in wartime is sort of at all times vastly greater than in peacetime.
“Whenever you need them, you actually need them,” Martin said.
Dan Grazier, a defense analyst for the Project on Government Oversight, echoed those concerns.
“Imagine a contract like this being signed on Sept. 10, 2001, when nobody could have foreseen what was [going to] kick off the following day,” Grazier said, referring to the 9/11 attacks on the USA. “And all those plans the day beforehand rapidly get thrown out the window.”
Grazier also said the worldwide nature of the F-35 program could complicate the management of a performance-based supply contract. The JPO said earlier in April the provision chain-focused PBL would cover all F-35s worldwide.
“Who knows what a few of these partner countries might get themselves into moving forward?” Grazier said.
On the Sea-Air-Space conference in April, Lt. Gen. Michael Schmidt, this system executive officer for the F-35, criticized this system’s “just in time” supply chain, through which parts arrive right before they’re needed and little inventory is stockpiled.
“When you’ve got that [just-in-time] mentality, a hiccup in the provision chain, whether or not it’s a strike … or a top quality issue, becomes your single point of failure,” Schmidt said.
Martin said a PBL contract could also result in a “robbing Peter to pay Paul” situation, through which Lockheed might cannibalize parts from one other aircraft or assembly line to satisfy supply requirements.
PBL deals “are almost the epitome of ‘just-in-time,’ ” Martin said.
Apollo and Brady said the PBL contract now under negotiation includes provisions for short-term fluctuations on a month-to-month basis. Brady noted that type of short-term surge would cover a ten% fluctuation in expected flight hours.
Apollo said that “from a month-to-month standpoint, we have now inbuilt that capability [to] have industry execute these peaks and valleys and perturbations for higher demand” in flight hours than normal.
But Brady said the draft PBL deal doesn’t take into consideration longer-term surges which may include a war or other event lasting one to 6 months, which could cause flight hours to significantly jump, and cause more wear and tear.
Lockheed and the F-35 Joint Program Office need to “wargame” those requirements, Brady and Apollo said.
“We’re working to … define: What does that surge seem like?” Brady said. “After which find a way to answer what that may be. But the present construct [of the PBL draft] doesn’t have a war-level surge; it has a month-to-month flight hour surge.”
Brady said it is going to be vital to take a look at different scenarios through which the U.S. military might use an F-35 as a way to ensure a PBL deal can handle the necessities.
Apollo pointed to 1 option in an interview with Defense News that may see more funding added to the PBL approach to handle a lengthier surge. Nevertheless, a follow-up email from the JPO explained the office couldn’t address broader discussions on the Defense Department level in regard to requirements for a sustained surge environment.
Martin found it encouraging to listen to Lockheed and JPO officials are considering wartime surge needs, but insisted they should proceed studying future needs, while also considering how one can incentive Lockheed to satisfy a possible surge.
“If we had a war, God forbid, that builds up … to a reasonably high-[operational] tempo — 10% [surge capacity] could be enough,” Martin said. “But we don’t know that, and we’re not going to know that without significantly more evaluation. After which the issue can be that as that [conflict] occurs, it’s going to be too late to do much about it.”
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.