UPDATE: This article was amended from its original version following President-elect Donald Trump’s tweet calling for new pricing for the F/A-18 Super Hornet to compete with the F-35 fighter jet.
Negotiations for the Pentagon’s next batch of 100 F-35 Joint Strike Fighters don’t technically resume until next month, but they’re clearly under way.
If the last few weeks serve as a precedent, a new, powerful player — the president of the United States — will replace Pentagon generals as the chief negotiator for multibillion arms deals.
Trump fired off a bombshell tweet Thursday evening saying that “based on the tremendous cost and cost overruns of the Lockheed Martin F-35” he as asked their competitor, Boeing, to “price-out a comparable” F/A-18 Super Hornet. If his prior tweets about the F-35 and high cost of Air Force One sent ripples waves throughout the defense industry, this one is a full-blown tsunami.
“We’ve never seen anything like this and have to admit there is a strong probability that the president-elect will be a very hands on government buyer,” Roman Schweizer, an analyst with Cowen, said in note to investors Wednesday evening after Trump met with some Pentagon brass and the CEOs of Lockheed Martin and Boeing at his Mar-a-Lago compound in Palm Beach, Florida.
Typically, in the case in the F-35, the general in charge of the project, Lt. Gen. Chris Bogdan, would negotiate with Jeff Babione, Lockheed Martin’s executive vice president and general manager of the program.
The tweet also shows how Trump was negotiating with Marillyn Hewson, Lockheed chairman, president and CEO, to talk about the F-35 and its high cost, which the president-elect called “out of control” last week.
“It’s a dance, you know, it’s a little bit of a dance,” Trump said. “But we’re going to get the costs down and we’re going to get it done beautifully.”
The Mar-a-Lago F-35 summit comes at a time of tense relations between the Pentagon and Lockheed. Last month, Pentagon negotiations gave Lockheed a $6.1 billion take-it-or-leave-it deal for 57 F-35s. Lockheed make no secret that it was unhappy with the deal and has until February to accept or reject it.
The music for that dance referenced by Trump will speed up soon when the Pentagon and Lockheed sit down in the middle of January to hammer out a deal for the next 100 F-35s. Earlier this week, Bogdan said the negotiations shouldn’t finish by Jan. 20 when Trump takes the oath of office, meaning he will be leading the dance.
“This raises the question of what kind of dance will play-out — something equivalent to a limbo, where Trump pushes for lower and lower prices resulting in [Lockheed] and its partners and subcontractors bending over backwards or something more akin to a waltz where the DoD and industry work together get at root causes of program costs,” Byron Callan, an analyst with Capital Alpha Partners wrote in a note to investors Thursday.
Hewson called the meeting with Trump “productive” and said she “appreciated the opportunity to discuss the importance of the F-35 program and the progress we’ve made in bringing the costs down.”
Regardless of how the negotiations shake out, the next order of F-35s is certain to come in at a better deal than the Pentagon’s previous order simply due to economies of scale. When you buy in bulk — just like shopping at a wholesale retailer like Costco or BJ’s — the price goes down. The question that remains is how much? Regardless, Trump will be able to claim victory in that he got a better deal for taxpayers.
“There’s a lot of ways to reduce cost,” Bogdan said on Monday. “I would advise the next secretary of defense and the next Defense Department to look in other places than reducing requirements.”
Bogdan himself has floated other ways to reduce the cost of each jet, including injecting more competition within the plane’s sprawling supply chain, which touches 45 states, and buying planes in bulk.
“If you have a single source supplier of a particular component on this airplane right now and you’re not sure if that person can build you 3,000 airplanes worth of that, you probably might want to open up a second source,” he said. “Once you open up a second source, now you have natural competition. We should explore some of that.”
Trump’s tweet saying that he would seeking pricing from Boeing for a Super Hornet comparable to the F-35 could give the Pentagon more leverage in its negotiations with Lockheed next month.
Lockheed declined to comment about Trump’s tweet. Boeing, on the other hand, tweeted that it was “ready to work” with Trump.
“We have committed to working with the president elect and his administration to provide the best capability, deliverability and affordability across all Boeing products and services to meet our national security needs,” Todd Blecher, a spokesman for the firm’s military business, said in an email.
TheF/A-18 Super Hornet is considered a competitor to F-35 in the international stage, but hasn’t been considered a major threat in the U.S. for years. But delays in production of the F-35 have lead the U.S. Navy to buy new Super Hornets to prevent a gap between the retirement of the older fighter jets and combat-ready new F-35s. Just last month, Canada said it would buy Super Hornets instead of F-35s.
Despite similarities, the two warplanes are not “comparable.” The F-35 is a stealth fighter, meaning it is built to avoid radar detection. To stay low-profile, the F-35 carries its bombs and missiles inside the jet, not outside on the wings like the Super Hornet. The F-35 also has an advanced computer system that processes data from a host of cameras and sensors.
But for all that it promises, the F-35 will not be fully battle ready to fight a diverse range of missions until the end of the decade. As for the F/A-18, its design is stable and Boeing can build them quickly. And Boeing has marketed an “advanced Super Hornet” with high-tech equipment somewhat comparable to the F-35.
Despite the current cost of a Super Hornet’s price tag, which is about half the cost of a $102 million F-35A, top military officials have argued the F-35 would be needed in any future war against a major power, like China and Russia.