'Budgetary Bargaining Chip'

The F-35 Joint Strike Fighter program is "becoming a budgetary bargaining chip," according to a just-released research note from analysts at Wall Street firm Credit Suisse.

The analysts' note references a letter sent yesterday by a key Republican senator urging Ashton Carter, the Obama administration's deputy defense secretary-nominee, to "step up" his defense of the JSF, suggesting that Carter's role in recent Pentagon decisions to restructure the program demonstrates "a lack of commitment to the success" of the F-35. As InsideDefense.com reported yesterday:

In a letter sent to Carter today, Sen. John Cornyn (R-TX) directly links the Senate's consideration of Carter's nomination for the Pentagon's No. 2 post to the lawmaker's concerns about the F-35, which is assembled by prime contractor Lockheed Martin in Fort Worth, TX. Carter, the Pentagon's acquisition executive, has played a pivotal role in decisions over the last two years to restructure the program, including deferring the procurement of 246 aircraft and plowing an additional $7.2 billion and two more years into the fighter's development phase.

"I am concerned that the DOD’s failure to sufficiently defend and advocate for the F-35 program has enabled and even invited unwarranted criticisms from many corners, including calls for partial or complete cancellation of the program," Cornyn writes. "It is my hope that, as deputy secretary of defense, you would be a champion of the F-35 program, using your voice to remind Congress that this weapon system is one our nation cannot do without."

"I strongly encourage you to step up your defense of this key program," Cornyn's letter states.

In a statement to InsideDefense.com, a Defense Department spokeswoman said: "We've received the letter, it asks important questions, and we look forward to sending a response."

The Credit Suisse research note issued this afternoon states that the Cornyn letter "illuminates proponents' rising fear of F-35 program vulnerability." Specifically:

Sen. Cornyn's perception triggers strong inference that [the Office of the Secretary of Defense] may target both F-35 Force Structure and Procurement quantities, under constrained 2013-2017 [program objective memorandum] deliberations. This concern is exacerbated by immediate flat-lining of [Defense Department] Base Budget for 2012-2013, under recent Budget Control Act.  (USAF currently plans to procure 1,763 CTOL; and Navy/USMC 680 CV/STOVL; for 2,443 total DoD orders - see F-35 funding charts inside)

Cornyn's Approach May Have Limited Impact: This Congressional effort at "hard-bargaining" bears obvious risk, given overriding focus by OMB & OSD Leadership on meeting Defense Funding "caps"; delayed nature of final 2013-2017 POM decisions in November-December; and level of Senate goodwill for Secretary Panetta. We think Senator Cornyn's action is unlikely to be supported by [Senate Armed Services Committee] Chairman [Carl] Levin (D-MI) or Ranking Member [John] McCain (R-AZ), who both harbor strong concerns over F-35 production cost-growth, and estimated future sustainment costs. (Nor does Senator Cornyn sit on SASC Air/Land Subcommittee, with jurisdiction over F-35). This also reinforces importance of F-35 LRIP 5 "Should Cost" Review (~October), because that will be the next insight into F-35 Unit-cost affordability.