June 11 (UPI) -- Lockheed Martin and the U.S. Department of Defense have reached a "handshake agreement" on a $34 billion contract to produce three future lots of F-35 Lightning II fighter planes at the lowest cost in the program's history.
In the largest F-35 procurement yet, Lockheed Martin will produce 478 F-35s, with the company estimating that the F-35A expected to eventually cost less than $80 million per jet, according to a company news release Monday.
Of the 478 F-35s in the agreement, 157 will be produced in Lot 12 for the U.S. military, partner nations and foreign sales customers. And the deal includes options for production Lots 13 and 14 for the rest of the aircraft over the next few years.
Lockheed describes the proposed deal as a "historic milestone."
"When the statutory certification is completed, we will be able to formally announce the final unit recurring flyaway prices for each variant in each lot," said Ellen Lord, the Pentagon's under secretary for acquisition and sustainment. "Until that time, I am proud to state that this agreement has achieved an estimated 8.8 percent savings from Lot 11 to Lot 12 F-35A's, and an approximate average of 15 percent URF reduction across all variants from Lot 11 to Lot 14."
Lockheed estimates the cost of an F-35A will be less than $80 million -- in Lot 13 -- one year earlier than planned.
"This agreement symbolizes my commitment to aggressively reduce F-35 cost, incentivize Industry to meet required performance, and to deliver the greatest capabilities to our warfighters at the best value to our taxpayers," Lord said.
The F-35 Joint Program Office team and Lockheed are finalizing the agreement and expect a formal award by August.
The contract surpasses a long-standing cost reduction commitment earlier than planned.
"With smart acquisition strategies, strong government-industry partnership and a relentless focus on cost reduction, the F-35 enterprise has successfully reduced procurement costs of the 5th Generation F-35 to equal or less than 4th Generation legacy aircraft," said Greg Ulmer, Lockheed Martin vice president and general manager of the F-35 program.
The average F-35 unit cost in fiscal year 2019 for the Defense Department was $108.78 million, according to a Pentagon report in March.
Lockheed has been seeking to cut subcontractor costs.
In April, Lockheed announced sub-contractors have been moved into performance-based logistics contracts or master repair agreements to improve capacity, reduce costs and enhance supply availability.
At the time, Ulmer said restructuring and streamlining contracts with industry partners was meant to "provide the long-term stability that will allow them to make investments, improve efficiencies and optimize their performance."
Since 2015, Lockheed Martin said it has reduced its portion of operating costs per aircraft by 15 percent and the touch labor on its production line by about 75 percent.
The first production F-35A was completed at Lockheed's plant in Fort Worth, Texas, in 2006. The U.S. Marine Corps, which flies the short takeoff/vertical landing version of the aircraft, the F-35B, was the first U.S. military branch to declare the plane operational, doing so in 2015.
The F-35A is planned to replace the A-10 and F-16 for the Air Force, the F-35C is to replace the F/A-18C for the U.S. Navy, the F-35B will take over for F/A-18B and AV-8B Harrier for the U.S. Marine Corps.
The U.S. military will eventually receive 2,456 F-35s -- 1,763 for the Air Force, 420 for the Marine Corps and 273 for the Navy, according to the Congressional Research Service.
Last week, Lockheed Martin was awarded a $1.8 billion contract for design and development of the F-35 Lightning II Phase 2.3 Pre-Modernization program, which includes development of Block 4 upgrades to the aircraft's software.