3rd April 2008 at 05:39WASHINGTON (Reuters) - The cost of each Lockheed Martin Corp (LMT.N: Quote, Profile, Research) F-35 fighter jet has soared 38 percent since 2001, but costs have been virtually unchanged over the past year, according to a Pentagon document obtained by Reuters on Tuesday.
The F-35 program is the most expensive weapons program in U.S. history. The Pentagon is developing versions of the fighter for the Air Force, Marine Corps and Navy, and to sell to other countries.
The cost of each F-35 rose 38.01 percent to $69.3 million per plane at the end of 2007 from $50.2 million in October 2001, when the development program began; but that was an increase of just 0.25 percent from December 2006, according to a copy of the draft document.
The overall program cost remained stable at $299 billion over the past year, after a 29 percent jump from 2001 to 2006 due to schedule changes, inflation indices, material cost increases and higher labor rates, according to the document.
Estimated operation and support costs for the F-35 over the life of the program, though, rose 17.5 percent to $764 billion from the December 2006 estimate of $650 billion, it showed. The document did not explain the increase, but the cost of jet fuel zoomed higher during 2007.
The overall program cost increase from 2001 may force the Pentagon to notify Congress but falls short of a congressional threshold triggering a Pentagon national security review that could lead to program termination.
Stable costs would be good news for Lockheed and Northrop Grumman Corp (NOC.N: Quote, Profile, Research), a key subcontractor on the program, said Virginia-based defense consultant Jim McAleese.
He said F-35 officials were now reviewing costs and seeking an independent estimate. Any notification to Congress would likely be delayed until September, he added.
"If the program office maintains the $70 million cost per airplane, Congress would universally support the program," McAleese said. "This will create significant upside for Lockheed stock if this occurs."
Lockheed shares were 1.83 percent higher at $101.12 in afternoon trading on the New York Stock Exchange. Northrop shares were up 0.68 percent at $78.34.
Lockheed spokesman Tom Jurkowsky said the F-35 program was performing well and making good technical progress, given that it was the most complex aircraft ever built.
"Affordability and cost-containment have been both the bedrock and the cornerstone of the F-35 program," he said, noting expenses were monitored "with unprecedented frequency and rigor."
The Pentagon document also showed the per unit F-35 cost dropped about 1 percent over the past year, when all the development costs were included.
That cost was $85.5 million, down about $100,000 from the December 2006 estimate but up 38.4 percent from the initial 2001 estimates of $61.8 million, the document showed.
The Pentagon's acquisitions chief, John Young, and other senior officials on the Pentagon's Defense Acquisition Board examined the F-35 program in detail last week.
Young is expected to sign a memorandum within the next two weeks to approve the purchase of a second batch of 12 low-rate initial production F-35 aircraft, according to two sources familiar with the issue, who asked not to be named.
The deal would include six conventional takeoff and landing models for the Air Force and six short takeoff vertical landing versions to be used by the Navy or Marines.
Young may also approve the purchase of long-lead items for a third batch of aircraft, one of the sources said.
In a report released Monday, the Government Accountability Office said F-35 development costs had been stable since a 2004 restructuring largely because officials removed $2.8 billion in funds for risk reduction and an alternate engine program.
Congress has repeatedly insisted on adding funding for the alternate engine to the Pentagon's budget, and lawmakers appear likely to do that again in the fiscal 2008 budget.
A recent further restructuring cut the number of flight test aircraft and planned flight test sorties, the GAO said, saying that added further risk to the program.
(Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick)
[I]Note: To put this into perspect of the Super Hornet cost ~$95 Million Dollars and the Raptor ~133 Million Dollars.[/I]:D