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 a House Armed Services subcommittee 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 Christopher Bogdan, the Defense Department's F-35 program executive officer, also confirmed in his testimony that he had a phone call with President Donald Trump days before the inauguration and Boeing's CEO was in the same room as Trump and overheard their conversation. 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 hearing, 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 also declined comment on the presidential call.
Thursday's hearing before the House Armed Services Subcommittee on Tactical Air and Land Forces was scheduled to provide an update on the F-35 program.
Bogdan's remarks about the Trump calls were in response to a comment from the chairman of the subcommittee, Rep. Michael Turner (R-Ohio). "There's been some media reports that the president has called you directly and that that's a break in the chain of command," he said.
"It is my belief that President-elect Trump at the time was attempting to gain more information about the F-35 and its affordability," Bogdan replied. "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 the 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 Navy carrier decks.
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, last estimated at about 53 years. The next-generation fighter is the Pentagon's most expensive program ever.
There are three different variants of the F-35 fifth-generation fighter, the F-35A for the Air Force, the F-35B for the Marines and the F-35C for the Navy.
The total U.S. military buy on the F-35 program is expected to reach 2,443 planes, and out of that 1,763 jets will be the Air Force variant.
There also are foreign military partners participating in the acquisition program. When including the foreign sales, there will be around 3,000 F-35 aircraft.
Lockheed has already delivered more than 200 F-35 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 the F-35A variant selling for $94.6 million apiece — a decline of 7.3 percent from the prior lot and the first time it was below the $100 million mark.
"We believe we are on track to continue to reduce the price of the F-35," said Bogdan. Specifically, he said in 2019 the F-35A variant will cost between $80 million and $85 million.
If the $80 million price target is realized on the F-35A, that would represent about 15 percent savings on the plane when compared with the last production lot contract.
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 about cost issues with the F-35 and added, "I have asked Boeing to price-out a comparable F-18 Super Hornet."
The F-18 is a fourth-generation fighter jet and doesn't have the advanced stealth capabilities found in the F-35 aircraft.
The F-35 has been a controversial program and plagued by cost overruns and technical issues over the years. Last fall, the Air Force grounded around a dozen F-35 jets when it found faulty insulation in fuel tank lines.
Bogdan said the insulation issue was resolved. 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."