Pentagon withholding about $5 million per F-35 with unfinished TR-3 upgrade

WASHINGTON — The Pentagon is withholding about $5 million from manufacturer Lockheed Martin for every F-35 stealth fighter the company delivers equipped with an unfinished upgrade, the F-35 Joint Program Office (JPO) revealed today.

The figure is the first official dollar amount disclosed by the Pentagon over the delay of a vital upgrade to the fifth-generation fighter, money that Lockheed cannot collect until the full upgrade is complete, expected sometime next year.

After deliveries of jets were frozen for a full year due to lingering issues with an upgrade known as Technology Refresh 3 (TR-3), the Pentagon resumed accepting F-35s outfitted with the enhancement in July. However, officials said then that the government would still withhold payments for upgraded planes since TR-3 is not finished — TR-3 jets delivered for now are reserved for training, and a subsequent software patch expected to enable full combat capability is anticipated next year — though the exact figure for the withholdings was not clear. 

According to a JPO spokesperson, that total is roughly $5 million per tail, which “is being withheld and will be released as combat capability is delivered.” The Pentagon has been tight-lipped about how many aircraft have been sequestered by the delivery freeze and did not say how many jets the withholdings extend to. 

Lockheed has said the delivery freeze has not affected F-35 production, with the aerospace giant maintaining a rate of 156 jets per year. The company has said in previous financial disclosures [PDF] that it expects to deliver “between 75 and 110 aircraft in the second half of 2024, primarily in the TR-3 configuration.” (Jets produced in the TR-2 configuration were unaffected by the delivery halt.)

As part of the announcement today, the JPO stated that the Pentagon and Lockheed “have reached an agreement for the acceptance and delivery of Technology Refresh 3 (TR-3) enabled aircraft with robust combat training capability,” improving upon an “initial training capability” available when deliveries resumed in July. The JPO could not provide an explanation for the difference in capabilities by press time.

The TR-3 upgrade essentially provides the hardware and software necessary to support a new suite of capabilities known as Block 4. Originally expected in April 2023, the TR-3 effort is about $1 billion over budget, and its troubles have forced Lockheed to forfeit about $60 million in fees associated with the effort. 

Once the TR-3 upgrade is finished, withheld dollars will be released, though the process of disbursing those funds was not immediately clear. During a scrum with reporters Wednesday on the sidelines of a ceremony unveiling Poland’s first F-35, the president of Lockheed’s aeronautics division, Greg Ulmer, said that the TR-3 software needed to enable full combat capability remains on track to deliver in 2025. 

Testing Enhancements

Officials have previously pointed to shortfalls in testing infrastructure as part of the explanation for TR-3’s troubles, which spurred lawmakers on the House Armed Services Committee (HASC) to back procurement cuts for the program in favor of more testing investments. According to Rep. Rob Wittman, a Virginia Republican who chairs the HASC tactical air and land forces subcommittee, those dollars could instead fund features like an “integrated software laboratory” and making a “digital twin” of the fighter.

So it is notable that in its statement today, the JPO said that “Lockheed Martin and its industry partners are making significant investments in development labs and digital infrastructure that benefit the F-35 enterprise’s speed and agility in fielding capabilities to the most advanced and connected fighter jet.”

Asked for more information by Breaking Defense, Lockheed said that the company “is collaborating with its F-35 industry partners to invest in enhancing capabilities and driving efficiency across the F-35 enterprise. Over the next five years, Lockheed Martin is investing well over $350 million to benefit the F-35 enterprise.”