Exclusive: Japan secures
extra cost cuts on U.S. F-35 fighter jet package -
sources
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[February 01, 2017]
By Tim Kelly and Nobuhiro Kubo
TOKYO
(Reuters) - Tokyo has secured cost cuts on support equipment for its
next batch of six U.S. F-35 stealth fighter aircraft of around $100
million, according to sources and Japanese budget papers, on top of
savings being finalised for all buyers of the high-tech jets.
The deal represents a rare case of Tokyo negotiating down the price of
military hardware from its U.S. ally and underscores progress for the
Lockheed Martin Corp-run F-35 program, which has faced criticisms over
cost overruns and other problems.
U.S. President Donald Trump, who lashed the program as "out of control"
in December, said on Monday he had been able to shave some $600 million
from the latest U.S. deal to buy about 90 F-35s from Lockheed.
But defense analysts and sources downplayed news of those cuts, saying
the discount hailed by Trump was in line with what had been flagged by
Lockheed for months and would apply to other countries committed to the
program.
Lockheed and the Pentagon did not directly respond to questions
regarding the Japanese deal.
A spokesperson for the U.S. Defense Department office which runs the
F-35 program said negotiations over the current batch of fighters, known
in the industry as LRIP 10, was continuing.
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"For every nation that buys an F-35 in LRIP 10, the base price of the
F-35 will be the lowest in F-35 history," Lockheed spokesman Michael
Rein said.
The price of the F-35 has been dropping with each new batch as Lockheed
and the U.S. government ramp up production, helping to lower overall
costs.
Four sources told Reuters Japan had further trimmed the price for its
latest order, largely on ground support costs such as parts, logistics
and technical assistance.
"We went through each item in detail and negotiated with the U.S.," said
one of the sources in Japan with knowledge of talks.
To view a graphic on Lockheed Martin's F-35 fighter jet orders, click
http://tmsnrt.rs/2kfLIef
For a graphic on Lockheed Martin's F-35 aircraft, click http://tmsnrt.rs/2jurTmk
COSTS DOWN
In a budget request last year, Japan's Ministry of Defence pegged the
price of the six F-35s at 15.7 billion yen ($136.81 million) each. That
had been cut to 14.6 billion yen when the budget was approved in
December, in line with the 6-7 percent per plane reduction flagged by
the Pentagon late last year.
The cost of support equipment dropped significantly, to 30.9 billion yen
from 42.3 billion yen, according to the publicly available documents.
Cost cuts on such deals are typically done by removing some equipment or
swapping out expensive components for cheaper ones.
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![](../images/020117pics/busine47.jpg)
A U.S.Marine Corps F-35B joint strike fighter jet conducts aerial
maneuvers during aerial refueling training over the Atlantic Ocean
in this undated picture released August 20, 2015. The Marine Corps'
F-35B model can take off from warships and aircraft carriers and
land like a helicopter. REUTERS/US Marine Corps/Handout/File Photo
![](http://archives.lincolndailynews.com/2017/Feb/01/images/ads/current/graue_17_cruze_110716.png)
Officials from a new Japanese defense procurement agency and Pentagon personnel
met several times in Tokyo between August and December before agreeing on the
lower price, said one of the sources, who were not authorized to speak publicly
about the deal.
LUCRATIVE MARKET
The total cost for the Japanese deal was just over $1 billion, around 12 percent
lower than budgeted in August.
The cost to the United States for its latest F-35 contract is expected to be
around $9 billion, with the price per plane falling below $100 million.
Japan's higher budgeted per aircraft costs of around $128 million include the
aircrafts' engines and additional funds to have 38 of the 42 F-35s it plans to
buy assembled in Japan by Mitsubishi Heavy Industries.
Japan does not buy the fighters directly from Lockheed but from the U.S.
government through its Foreign Military Sales (FMS) system, which Washington
uses to keep tight control on sensitive military equipment.
The
U.S. government typically charges a 3.8 percent sales fee for those
transactions.
Until now Japan has rarely questioned the price of equipment purchased from its
U.S. ally, making it a lucrative market for the likes of Lockheed, Boeing Co,
Northrop Grumman and Raytheon Co.
Japan is equipping its military with American kit to help reinforce maritime
holdings along the southern edge of the East China Sea where it is locked in a
dispute over territory with Beijing. In addition to the F-35s, Japan is buying
the Bell Boeing Osprey tilt-rotor aircraft and Northrop Grumman's Global Hawk
drone.
Japan's splurge on U.S. equipment has put a strain on its finances. In 2016
procurement through the Foreign Military Sales system totaled 485.8 billion yen
compared with 117.9 billion yen three years earlier.
Tokyo will begin deploying the first of its stealth fighters around the end of
this year.
($1 = 113.6200 yen)
(Additional reporting by Mike Stone in Washington; Editing by Lincoln Feast)
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