OM in the News: The Pentagon’s F-35 Push
When I worked as a design engineer at McDonnell Douglas in the late 1960s, the F-4 Phantom fighter jet assembly line was one floor above my basement office. We rolled out one Phantom a day, a very efficient line, with volume stable and constant. This has not been the case with our nation’s latest fighter jet, the F-35. Lockheed’s mile-long assembly plant in Fort Worth currently produces only four F-35s a month.
But now “the Pentagon plans to push Congress to approve a deal for more than 400 F-35 jets, worth $34 billion, in what would be the largest-ever weapons’ contract,” writes The Wall Street Journal (May 30-31, 2015). The Pentagon said that committing to buy that many jets over 3 years starting in 2018 could yield cost savings as suppliers would be able to plan with more certainty, buy materials in bulk and triple production from existing levels to about 150 planes a year.
Boosting production is crucial to cutting the cost of the F-35 from the $108 million average paid for the jet in a 43-plane deal agreed last November. Lockheed recently submitted proposals for the next 2 batches of aircraft, and alongside other suppliers have pledged to cut the average cost to $80-$85 million by 2019. Even a rise in output to 150 jets a year would fall short of the 200-plane capacity of the Lockheed plant. Analysts believe official projections of demand for more than 3,000 jets won’t be realized. (Italy and Japan also plan to assemble some jets). Lockheed’s earlier F-16 fighter jet had more than 4,500 orders, and experts expect the F-35 to secure at most 2,000.
Classroom discussion questions:
1. This cost savings plan requires knowledge of learning curves (see Module E). What is the typical learning rate in this industry and how does it impact the analysis?
2. Why will increasing production rates decrease unit costs?