F-35 Held Hostage

A lot of attention has understand­ably accrued to the US Department of Defense’s FY 2023 request for 61 F-35s, 33 (15 As, 5 Bs, and 13 Cs) be­low the number previously projected for that year. Let’s talk about that just a little bit.

First, the Department of Defense has been accused of using the F-35 program as a source for funding other priorities. There’s some reason to be­lieve that’s true. But we don’t believe that’s what’s at work here.

DoD declared that the main reason for the FY 23 request was that they did not want to acquire more F-35s until the Block 4 software had ma­tured, to prevent the need to subse­quently upgrade newly acquired jets. Which is fair. But again, while con­tributory, we don’t think that’s the real cause.

It appears that the real issue is the annual cap of 156 jets agreed on (un­der some duress) in September 2021. That was before the announcements from Finland, Germany, and Canada, and before Switzerland was final­ized. In order to make headroom on the production line for those allied jets, US purchases had to come down – so long as the 156 cap was still in place.

Why wasn’t it just lifted? Teal be­lieves that the annual production rate is being held hostage to the ongoing negotiations between DoD and Lock­heed Martin for Lot 14-17 of F-35 procurement for the US. After that deal is concluded, we expect the cap to be lifted, and annual production to reach a more natural rate of 175 to 190 jets per year. But for now, the cap is being given more deference than the current US requirement.

There’s enough promise, and not enough threat, to keep our funding and production forecasts healthy. They correspond to the FY 2021/ 2022 plan, which, inevitably, came back down to the 48 maximum level we’ve forecasted for years (largely due to the F-15, although plus-ups have raised the total to 55-62 for the previous four fiscal years). We think that any cuts in U.S. F-35 procure­ment are a temporary aberration and will resolve once the artificial cap of 156 per year is removed. Once that cap is off, we expect to return our forecast for U.S. As, Bs, and Cs to 48, 22, and 22, respectively.