DoD Buzz

Not with a bang, but a whimper

Lockheed keeps telling DoD that the best thing it can do for the F-35 Lightning II is buy more of them faster, to get the big assembly line down in Texas rolling at the best clip possible. But that's just not in the cards, and in fact, the delays in the program already are making ripples along its outer edges.

Case in point: An Australian sub-contractor went bankrupt and is being liquidated, The Canberra Times reports, because the investment it made in the equipment it needs to build F-35 parts has not paid off in time. After spending millions on the custom machines it needed to make some 12 components for the Aussies' jets and their engines, Production Parts of the Melbourne area is closing its stores, writes, David Ellery. The work the company was expecting would offset its investment never materialized.

Continued Ellery:

A defence contractor, who did not wish to be named, said this was ironic as the Australian Government had encouraged Production Parts and other small to medium defence and aeronautical firms to get involved in the JSF in the first place.

The Department of Innovation, Industry, Science and Research website says, ''The Australian Government's JSF Industry Team is represented by [Innovation] and the Department of Defence and works to maximise Australian industry opportunities in the $300 billion JSF program.''

While it may be the first high-profile JSF supplier to go under, Production Parts is not expected to be the last. ''Production Parts could be 'the canary in the mine','' one contractor said. "Having a contract is one thing but when the orders don't come through there is no cash flow."

Now -- what to make of this story? We've talked before about how if the F-35 goes away, it could be because of the dreaded death spiral, with unit reductions driving up unit costs, which lead to more unit reductions, until you can't afford any jets and scrap the whole shootin' match. But this doesn't happen in a vacuum: As the mechanism is shaking itself apart, the companies that were counting on work might begin to wither. That could also raise the program's costs to the tune of whatever you have to spend to keep alive or reconstitute the weakened firms -- if you can. And so on.

To be sure, however, Australia is not the United States. The Pentagon's order for F-35s dwarfs Australia's, and in the U.S., the various defense firms that help build the jet are -- at least for now -- in very good health. In fact, DoD officials have even talked about trying to get more "competition" among sub-level parts vendors on the U.S. F-35, given that the economic profile of all the companies involved is so broad. But if the program hits another major roadblock or endures still more delays, it's very possible we could see stories like Production Parts' cropping up here at home.

Is this a cause for worry? What do you think?

UPDATE: Ellery has another story that indicates Production Parts' closure may mean that Lockheed could pull about $40 million worth of work from Australia altogether.

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