Pentagon continues to withhold F-35 payments to Lockheed over upgrade delays
Despite the recent resumption of F-35 deliveries, the Pentagon remains firm in withholding payments to Lockheed Martin due to ongoing delays with the Technology Refresh 3 (TR-3) upgrade. This stance was reiterated by Andrew Hunter, the Air Force's top acquisition executive, during a briefing at the Royal International Air Tattoo (RIAT) air show.
Hunter stated "There are still withholds. Since not everything that we contracted for has been delivered, payment is also not complete. We will not pay for that which we have not yet received." This decision follows a year-long pause in F-35 deliveries initiated in July 2023 due to issues with the TR-3 upgrade. The withheld payments amount to approximately $7 million per plane.
The TR-3 upgrade is a crucial component of the F-35 program, involving both hardware and software enhancements essential for the upcoming Block 4 upgrades. Although the hardware was deemed mature enough for production, the jets equipped with this upgrade were held back due to software glitches. Consequently, Lockheed continued to deliver jets with the previous TR-2 configuration.
Lockheed Martin has expressed its commitment to resolving these issues, as detailed in a financial disclosure form (8-K) released recently. The company is collaborating with the F-35 Joint Program Office (JPO) on the terms for final payments and a phased delivery approach. Lockheed anticipates delivering between 75 and 110 aircraft in the second half of 2024, predominantly in the TR-3 configuration.
To address operational pressures, the Pentagon has accepted a "truncation" plan for the jets, as outlined by Air Force Lt. Gen. Mike Schmidt, head of the F-35 program. Under this plan, jets are delivered with software suitable only for training, with full combat capability software expected in about a year.
The delivery freeze impacted a significant number of jets, potentially as many as 124 by the end of June 2024, according to Bloomberg. The Government Accountability Office also noted that it could take up to a year to clear the backlog of fighters.
In addition to withholding payments, Lockheed has forfeited $60 million in fees for the TR-3 work. The upgrade, originally expected in April 2023, is now about $1 billion over budget, prompting concerns from lawmakers.
Hunter noted that the TR-3 delays have spurred developmental breakthroughs within the F-35 program. Collaboration among key subcontractors, including Northrop Grumman, BAE, and Pratt & Whitney, has improved, helping to overcome developmental challenges. "They have worked very hard... I think it was because of the pressure of TR-3 being behind and then the other things that are coming along the way, the rest of Block 4," Hunter explained.
Air Force Secretary Frank Kendall emphasized Lockheed's strong motivation to expedite the remaining TR-3 work, despite inherent program challenges. "I don’t think Lockheed’s trying not to deliver," Kendall remarked. "There’s a lot of motivation. It’s inherent in the program that they want to get this done. Their sales depend upon it. But we are using some financial incentives to strengthen that a little bit."
In summary, while progress has been made in resuming F-35 deliveries, the Pentagon's financial withholds underscore the significant challenges and pressures within the TR-3 upgrade process. The collaborative efforts of the defense contractors involved highlight the complexities of advancing military technology and maintaining program schedules.
