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Market analysis Joint Strike Fighter- How many JSF’s will be produced?
By Guest contributors for CEOWORLD Magazine Updated:October 20, 2009
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How many Lockheed Martin F-35 Joint Strike Fighters will be manufactured? Optimistic marketing figures are telling us that market opportunities of 5.000 – 6.000 F-35’s are possible. The Dutch government structurally uses a number of 4.500 JSF’s in their JSF Business Case calculations. These optimistic numbers are widely used amongst governmental and industrial organisations in several JSF Partner countries. However, when these parameter (4.500-6.000 JSF’s) wrong, the foundation of a lot a calculations, expectations, nice promises, non-binding contracts and investment decisions is wrong.
After a hearing in April 2009 about the rising cost of the F-35 some Members of the Dutch Parliament commissioned the independent Dutch JSF F-35 expert Johan Boeder a report JSF market analysis: how many JSF’s will be produced”.
Focus of this report
The author shows that the early JSF Program Office and Lockheed Martin’s expectations about the JSF market opportunities were over-optimistic prior to essential JSF participation decisions in 2002. Their optimistic expectations haven’t changed since 2002 in a rapidly changing world. The report will give the readers a clear and complete detailed overview of the world potential for JSF fighters. The key reasons that will cause up to 50% lower numbers are analysed for each of the potential countries with a main focus on the situation of the leading buyer, the USA. This will have implications for industrial investment and supply chain planning and for calculations of employment rates.
Optimistic view prior to 2002 decisions
In 2002 the decision in The Netherlands and in several JSF partner countries to participate in the Joint Stike Fighter development was an “industrial project”. It would be a unique project, based on “best price and best value” and not on the more certain “industrial offset” model.
The main reason the Dutch government and parliament decided to participate was that high industrial orders were promised for a minimum of 4.500 aircraft with opportunities promised by Lockheed Martin to a maximum of 6.000 aircraft.
In The Netherlands the calculation of the Business Case was based on the possibility to pay in US$ 800 million in SDD stage, pre-financed by Government and to be paid back with royalty charges of real sold aircraft. In other countries the situation was more or less the same, sometimes with different calculation models, but all with the same market analysis. Details of these “marketing analysis” were not public and not available for national parliaments for “commercial reasons”. Decision to participate were not based on real and verifiable market analysis. I found that already in 2002 the quantity of 4500 to 6000 was far from realistic. Only with a 90% market share in markets available for the US industry and without shrinking defense budgets these numbers would be possible.
Since 2002 the order intake (fixed orders) of the industry of several JSF partner countries shows clearly that the promises can not be kept, it is reflected in a downward adjustment of numbers in press bulletins of the industry from 2002 through 2008.
The reality of 2002 is not the reality of 2009
Now, in 2009, based on current market data we may investigate the reality of the industrial possibilities in the JSF project. But governments, parliaments, industry and taxpayers in The Netherlands, Norway, Denmark, Australia and Canada are still believing that there will be a possibility to sell 4.500 to 6.000 F-35 Joint Strike Fighters. And industial and political leaders are basing their decisions on the uncritical use of these numbers.
Several countries have defense budget constraints. There is an over four year delay in development and start of full production of the F-35. The F-35 is not as affordable as promised, with a 40% increase of the unit price and estimated life cycle cost doubled since 2001. The F-35 is a post-Cold War concept, but the (hybrid) warfare in Iraq and Afghanistan show other operational needs. And a changing balance of power by a fast developing Asian continent with an own defense industry will change the high-end requirements of the Forces. Also, the reality of fighter replacements during the 1990-2009 period show that retirement of old 3rd and 4th generation jet fighters doesn’t mean replacement, the total fighter market is becoming smaller. All these factors are influencing marketing campaigns and opportunities in several countries.
Summary of quantities per market
The detailed quantitative analysis in this report shows that a “likely estimate” of about 2.500 aircraft, including 450 foreign sales aircraft (outside the JSF partner countries) is a more realistic one. In each case the now widely used, commercial driven, expectation of a production of 5.000 – 6.000 aircraft has to be divided by a factor 2.
The key reasons that will cause up to 50% lower numbers are analysed for each of the potential countries with a main focus on the situation of the leading buyer, the USA. Details can be found in the referenced paragraphs. Continent by continent and country by country, all 166 countries in the world, the market opportunities and quantities are analysed, based on current fleet, planned replacements until 2030, budget and available competitors.
Situational and factual analysis
The analysis of possible JSF opportunities and production quantities offered in this report was based on the reality of the World market of fighter jets. In spite of other publications about lower market expectations the JSF Program Office, Lockheed Martin and numerous governmental institutions are refusing to update their official market expectations. They are still using numbers between 4.500 and 6.000 without a solid foundation.
What will cause lower F-35 numbers within the US Forces
The US Forces are the most important contributor to the F-35 Program, paying most of the development costs and procuring far the most F-35A’s. Without the USA the development of the F-35B and F-35C not even would happen.
Therefore this report focuses in detail on what will cause lower numbers of F-35’s to be procured by the USA. Not only general budget constraints of the US Government and the Department of Defense will influence the funding. Within the F-35 Program there are several influences also, the delay of over four years in the development stage and the long, near 20 year, period between start of the program Start 1996 and start of full scale production in 2016 will turn the F-35 into a partly obsolete post-Cold War concept before becoming operational. Operational alternatives are necessary and available, or being developed, like Unmanned Vehicles, the OA-X counter-insurgency concept, new needs for medium range aircraft, future need of 6th generation aircraft in the late 2020s. In short term the fighter gap will lead to closed squadrons, an irreversible process, and to smaller squadrons.
The delays in production as a result of delays in development and testing have resulted in lower quantities, may lead to missed or missing market opportunities in several countries. The cost growth of 38% and the doubled life cycle cost since 2001 makes the F-35 less affordable than predicted. All these factors are interacting with each other, as a deadly embracing. Lower quantities mean loss of economy of scale, that will bring higher prices, the start of a downward spiral in the F-35 program.
Many of these factors are not only valid in the USA, but are valid also in several JSF Partner countries with the same effects.
“US Budget as Independent Variable”
Signals of decreasing F-35 quantities within the US Forces
In mean time in the USA we have clear signals within the US Forces of descreasing F-35 quantities. The first cut was in 1997, when 126 aircraft were scrapped from the total. The next QDR, in 2002, again 409 aircraft were scrapped. New attempts to cut in the US JSF numbers in 2005 were avoided officially, the real reason not to frustrate the cooperation with the JSF development partner countries. The shift in early 2007 to a far future (2028-2034) of hundreds of F-35’s can be considered as a new sign in the funding problems the program has within the USA. The official requirement in the documents is not the same as funding possibilities. Not even the downsized number of 110 F-35’s per year can be paid from the DoD’s budget.
In comparison with the original planning in 2002 a total of 660 units are scrapped in the first series of low rate initial production: the most clear sign of delay and missed industrial and commercial opportunities. Also, the last three years there is further downsizing of the numbers to be procured. Latest signs are new CSBA reports, written by advisors with close relationship with the Obama-administration, advicing much lower numbers.
Industrial orders much lower
The logical consequence of the lower market expectations will be that the economical benefits and the amount of industrial orders will be much lower.
For exemple, in the Dutch situation the original promise of Lockheed Martin was “possible orders of US$ 8 billion (€ 8 billion in 2001 currency)”, based on 6.000 aircraft.
When the market is 3.000 aircraft, it means 50% the orders, or US$ 4 billion, or € 2,75 billion in 2009 currency. This is less than 35% of the original amount, expected in 2001.
This will have implications for industrial investment and supply chain planning and for calculations of employment rates. Other JSF partner countries will experience the same.
It means that the value of subcontracts and coproduction offered to potential buyers is also smaller, and this undermines the business case on which individual countries will base their decision on JSF
Lower quantity means higher procurement prices
Lower production quantities will cause less economy of scale with a deadly embracing price-quantity spiral with much higher procurement prices and further decreasing market opportunities. It will effect the possibilties within the defense budget of the involved countries.
F-35 life cycle cost estimates more than doubled since 2002
Lower production quantities will not only cause higher procurement prices, but also more expensive later upgrades and higher exploitation cost with important effect on long term defense budgets. The author, Johan Boeder, issued a separate report about the decreasing affordability of the F-35, “Exploitation cost JSF, more than doubled since 2002”, April 2009, 44 pages, for the Dutch Parliament, Standing Committee of Defence.
ByJohan Boeder (The Netherlands) started publishing about aviation in 1977 as a freelance author and publicist working for several newspapers. Since 2007 he advices Members of Parliament in several European countries as an independent expert on the F-35 fighter program and business case.
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