Italy Takes $1 Billion Risk With F-35 FACO

By Amy Butler
Source: Aviation Week & Space Technology

In chasing the F-35 work, however, there is no guaranteed share for Italy as there was with the Typhoon, which had a clear workshare agreement among the partners.

The mantra for the U.S.-led F-35 program and its nine partners since development began in 2001 has been that no country will gain work at a cost to the program—any country seeking special technology or work must do so with no impact on the aircraft's price.

“Before, we were just playing in a safe situation,” says air force Lt. Gen. Claudio Debertolis, secretary general of defense and national armaments director for Italy. “With the Joint Strike Fighter, I have to gain the work for Italy.” Full final-assembly and eventual repair work could support jobs for about 10,000 workers in Italy, including Alenia and a host of small businesses around the country, says Debertolis, who heads up the industrial policy function for the Italian defense ministry.

The military is making “relatively small” investments with small businesses in areas such as materials and tooling to position them for F-35 work. Debertolis hopes this will not only invigorate the aerospace community, but also spark Alenia to become more competitive for the benefit of the Italian military, as well as a stronger competitor in the global market. “Alenia was used to being protected, to have a guaranteed profit [and] now, for the future, they need to be more competitive,” he says.

Alenia, however, is less optimistic. The Eurofighter employs people today, while the F-35 has no guarantee of significant employment. Perhaps most troubling to Alenia is that the company is carrying the financial liability for the time it will take for its workers to become as efficient as those working in Fort Worth for the last five years.

It is called a learning curve—the time it takes workers to reach optimum efficiency. Already producing the fifth lot of aircraft, Lockheed Martin's workers have cut costs more than $100 million per F-35A and are working down a strong learning curve as volume buys are expected to increase. But Lockheed also had the benefit of cost-plus contracts with the Pentagon for the first four years of production, allowing the company to pass most learning curve costs—such as excess work owing to supply issues—on to the government.

Alenia, in contrast, will not have that advantage. The first of six jets to be on contract—three each in low-rate, initial production (LRIP) Lots 6 and 7—will be under a fixed-price contract between both the Pentagon and Lockheed Martin and, accordingly Lockheed Martin and Alenia.

The F-35 program will not assume the cost for these early years of Italian work. Esposito says the Italian ministry of defense, for now, is also unwilling to underwrite the work. “We don't want to pay for the loss,” says Debertolis. “So, they have to be competitive. They have to reduce their profit margin. Our small industry is already used to that.” Lupoli, however, notes that “There is no upfront guarantee for the gap [but] we will come to the table” to discuss the issue depending on the size of the loss.

Though not offering direct reimbursement for operating in the red on early LRIP lots, the Italian air force paid for the FACO facility and is helping with risk-reduction measures. This includes the use of air force facilities to begin building F-35 wings. Lockheed Martin and Alenia signed a long-term agreement in February for production of the first 130 wing “equivalents” (or 130 of each of the major wing components). Six years of guaranteed work helps mitigate Alenia's risk in underwriting the learning curve on the wings.

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