And you thought that hedge funds and derivatives were complex.

So Lockheed-Martin is trying to set realistic prices for the F-35 (paid subscription required), so that it can finalize deals, particularly with countries on board the program who have not yet made official decisions to purchase the fighter.

The most recent estimates are the CTOL at $49.5 million, STVOL at $69.3 million, and the carrier variant at $64.5 million, and I don’t believe any of that. I would be surprised if the CTOL variant is less than €50m and the STOVL and CV versions were under €65 million, and I expect the dollar to fall against the Euro a lot over the next 5-8 years.

In any case, L-M is looking for a “consortium buy”, where the partners in the program lock in the price by paying for jets in 2011 that are delivered after 2014, think of it as a stealthy Brooklyn bridge purchase.

Of course LM officials maintain that their cost models are “more reliable” than of past fighter programs…which honestly is not saying all that much.

The idea is to lock the partners into multiyear procurement when the US Congress won’t allow the US military to do so until the aircraft is certified for full rate production.

Only that certification comes in 2014 at the earliest, so they want to have multi year pre-paid contracts to buy in 2011, for delivery in 2014, even though that is the earliest date one can expect to have the aircraft certified for full rate production.

When you add to this the fact that the system will be highly integrated, and customers will find it very difficult to install their own upgrades (the Israelis are already in talks on this), I think that this will be much more expensive than they are claiming here.

I could be wrong, but it’s tough to be wrong when you expect cost overruns and schedule slips in a major defense contract.