Background

The Joint Strike Fighter is DOD’s most expensive aircraft acquisition  program. The number of aircraft engines and spare parts expected to be  purchased, along with the lifetime support needed to sustain the engines,  mean the future financial investment will be significant. DOD is expected  to develop, procure, and maintain 2,443 aircraft at a cost of more than   $338 billion over the program’s life cycle. The JSF is being developed in  three variants for the U.S. military: a conventional takeoff and landing  aircraft for the Air Force, a carrier-capable version for the Navy, and a  short takeoff and vertical landing variant for the Marine Corps. In addition  to its size and cost, the impact of the JSF program is even greater when  combined with potential international sales (expected to be between   2,000 and 3,500 additional aircraft) and the current U.S. aircraft that the  JSF will either replace or complement to meet mission requirements.
Congress first expressed concern over the lack of engine competition in  the JSF program in fiscal year 1996 and in fiscal year 1998 directed DOD to  ensure that sufficient funding was committed to develop an alternate  engine. Since that time, DOD has initiated multiple studies to determine  the advantages and disadvantages of the alternate engine program. DOD  program management advisory groups conducted studies in 1998 and  again in 2002, both resulting in recommendations to continue with the  alternate engine program. The advisory groups determined that developing  an alternate JSF engine had significant benefits in the areas of contractor  responsiveness, industrial base, aircraft readiness, and international  participation. They also reported finding marginal benefits in the areas of  cost savings and the ability to add future engine improvements. However,  they found no benefit with regard to reducing development risk without  restructuring the program. The advisory groups noted that these  recommendations were made independent of the services’ ability to fund  the program—meaning overall affordability should be taken into  consideration.
In August 2005, DOD awarded a $2.1 billion contract for alternate engine  system development and demonstration, of which $699 million has been  appropriated to date. In its fiscal year 2007 budget submission, DOD  proposed canceling the alternate engine program and eliminated funding  related to this effort. While Congress restored the majority of the funding  for that year, DOD again eliminated alternate engine funding in its  proposed budget for fiscal year 2008.
DOD decided to cancel the alternate engine program prior to the fiscal  year budget submission, stating that (1) no net cost benefits or savings are  to be expected from competition and (2) low operational risk exists for  the warfighter under a sole-source engine supplier strategy. We reported  last year that this decision was made without a new and comprehensive  analysis and focused only on the potential up-front savings in engine  procurement costs. We stated further that costs already sunk were  inappropriately included and long-term savings that might accrue from  competition for providing support for maintenance and operations over  the life cycle of the engine were excluded from the decision justification.  Our position was that DOD’s decision to cancel the program was driven by  the need to identify sources of funding in order to pay for other, more  immediate priorities within the department.
DOD did not change the JSF acquisition strategy to reflect its proposed  elimination of the alternate engine program, and it continues a dual engine  approach. The 2007 Defense Authorization Act has now placed certain  restrictions on DOD modification of the dual engine approach. According  to current JSF program plans, beginning in fiscal year 2007, the program  office will award the first of three annual production contracts to Pratt &  Whitney for its F135 engine. In fiscal years 2010 and 2011, noncompetitive  contracts will be awarded to both Pratt & Whitney and to the Fighter  Engine Team for the F136 engine. Beginning in fiscal year 2012, contracts  will be awarded on an annual basis under a competitive approach for  quantities beyond each contractor’s minimum sustaining rate. Full-rate  production for the program begins in fiscal year 2014 and is expected to  continue through fiscal year 2034. The JSF program intends to use a  combination of competition, performance-based logistics, and contract  incentives to achieve goals related to affordability, supportability, and  safety. Through this approach, the JSF program office hopes to achieve  substantial reductions in engine operating and support costs.  Traditionally, operating and support costs have accounted for 72 percent  of a program’s life cycle costs.

	Our Analysis of Alternatives Suggests Competition Benefits Could Outweigh Costs

Without competition, the JSF program office estimates that it will spend  $53.4 billion over the remainder of the F135 engine program. This includes  cost estimates for the completion of system development, procurement of  2,443 engines, production support, and sustainment. Additional investment  of between $3.6 billion and $4.5 billion may be required should the  Department decide to continue competition in the JSF engine program.  This includes additional development, procurement, support, and stand-up  costs for a second engine provider. While Pratt & Whitney design  responsibilities and associated costs may be reduced under a sole-source  contract, our analysis shows that competitive pressures may yield enough  financial savings to offset the costs of competition over the life of the  program. These results are dependent on how the government decides to  run the competition, the number of aircraft that are ultimately purchased,  and the exact ratio of engines awarded to each contractor. Given certain  assumptions with regard to these factors, the additional costs of having  the alternate engine could be recouped if competition were to generate  approximately 10.3 to 12.3 percent savings. According to actual Air Force  data from past engine programs, including for the F-16 aircraft, it is  reasonable to expect savings of at least that much. Additionally, there are  a number of non financial benefits that may result from competition,  including better performance, increased reliability, and improved  contractor responsiveness.

		Sole-Source Alternative Requires Less Short-term Investment

The cost of the Pratt & Whitney F135 engine is estimated to be   $53.4 billion over the remainder of the program. This includes cost  estimates for the completion of system development, procurement of  engines, production support, and sustainment. Table 1 shows the costs  remaining to develop, procure, and support the Pratt & Whitney F135  engine on a sole-source basis.
Costs remaining for the JSF engine program can be broken down into four  categories:  remaining system development and demonstration contract costs;    engine unit recurring flyaway costs—per unit cost for aircraft,  based on rate of learning;    production support costs related to production spares, training  personnel and equipment, manpower, and depot facilities; and    sustainment costs to maintain fielded aircraft based on engine flight  hour costs and usage rates.
Stable requirements and funding, a well-defined acquisition strategy, an  appropriately structured contract, and adequate oversight are keys to  ensuring the contractor is motivated to perform, especially under a sole- source contract where competitive pressure does not exist. In a sole- source environment, the primary benefit comes from the improved rate of  progress, or “learning,” achieved by the contractor based on having all  production activity. In other words, the greater volume of business given  to a single contactor is expected to translate into efficiency in production  in a shorter time, thereby lowering associated costs. Learning curves must  be established in a manner so that the contractor is not only intent on  meeting that curve, but also incentivized to exceed the curve in order to  achieve cost reductions. Through analysis of program information and in  conversations with Pratt & Whitney and JSF program office personnel, we  found examples of initiatives aimed at improving the F135 learning curve.  Pratt & Whitney has ongoing and planned activities in areas such as supply  chain optimization, technology development, and manufacturing efficiency  that it hopes will reduce unit costs through the first 5 years of F135  production.
Having Pratt & Whitney as the single engine manufacturer may also  provide benefits in terms of simpler design and integration  responsibilities. Currently, in addition to development of the F135 engine  design, Pratt & Whitney has responsibility for design and development of  common components that will go on all JSF aircraft, regardless of which  contractor provides the engine core. Examples of common components  include the lift fan and roll posts for the Marine Corps variant, the exhaust  nozzles, and ducts. This responsibility supports the overall F-35 program  requirement that the engine be interchangeable—either engine can be  used in any aircraft variant, either during initial installation or when  replacement is required. In the event that Pratt & Whitney is made the  sole-source engine provider, future configuration changes to the aircraft  and common components could be optimized for the F135 engine, instead  of potentially compromised design solutions or additional costs needed to  support both F135 and F136.

		JSF Engine Competition Could Result in Future Savings

In testimony last year, the Under Secretary of Defense for Acquisition,  Technology, and Logistics reported that DOD preferred a sole-source  engine strategy for the JSF program. He noted that maintaining two engine  suppliers for the program would cost, at that time, an additional   $1.8 billion for the development phase which was not the most efficient  use of Department resources. In fact, when considering the costs of  competition over the full life cycle of the F136 program, the additional  costs are even greater. The government’s ability to recoup the additional  investments required to support competition depends largely on (1) the  number of aircraft produced, (2) the ratio that each contractor wins out of  that total, and (3) the savings rate that competitive pressures drive. We  estimated costs under two competitive scenarios; one in which  contractors are each awarded 50 percent of the total engine purchases  (50/50 split) and one in which there is a 70/30 percent award split of total  engine purchases to either contractor, beginning in fiscal year 2012.  Without consideration of potential savings, the additional costs of  competition total $4.5 billion under the first scenario and $3.6 billion under  the second scenario. Table 2 shows the additional cost associated with  competition under these two scenarios.
The disparity in costs between the two competitive scenarios reflects the  loss of learning resulting from lower production volumes that is accounted  for in the projected unit recurring flyaway costs used to construct each  estimate. The other costs include approximately $1.4 billion in remaining  F136 development costs and $127 million in additional stand-up costs,  which would be the same under either competitive scenario.
DOD implemented the JSF alternate engine development program to  provide competition between two engine manufacturers in an effort to  achieve cost savings, improve performance, and gain other benefits. For  example, competition may incentivize the contractors to achieve more  aggressive production learning curves, produce more reliable engines that  are less costly to maintain, and invest additional corporate money in  technological improvements to remain competitive. To reflect these and  other potential factors, we applied a 10 to 20 percent range of potential  cost savings to our estimates, where pertinent to a competitive  environment. Further, when comparing life cycle costs, it is important to  consider that many of the additional investments associated with  competition are often made earlier in the program’s life cycle, though  much of the expected savings do not accrue for decades. Therefore, a net  present value calculation (time value of money) must be included in the  analysis and, once applied, provides for a better estimate of program rate  of return. Figure 1 shows the results of our analysis under different  scenarios and accounting for the time value of money.
When we assumed overall savings due to competition, our analysis  indicated that recoupment of those initial investment costs would occur at  somewhere between 10.3 and 12.3 percent, depending on the number of  engines awarded to each contractor. A competitive scenario where one of  the contractors receives 70 percent of the annual production aircraft,  while the other receives only 30 percent reaches the breakeven point at  10.3 percent savings. A competitive scenario where both contractors  receive 50 percent of the production aircraft reaches this point at   12.3 percent savings. We believe it is reasonable to assume at least this  much savings in the long run based on analysis of actual data from the   F-16 engine competition.

		Competition Offers Potential Benefits beyond Financial Savings

Competition may also provide benefits that do not result in immediate  financial savings, but may result in reduced costs or other positive  outcomes to the program over time. DOD and others have performed  studies and have widespread concurrence as to these other benefits,  including better engine performance, increased reliability, and improved  contractor responsiveness. In fact, in 1998 and 2002, DOD program  management advisory groups assessed the JSF alternate engine program  and found the potential for significant benefits in these and other areas.  Table 3 summarizes the benefits determined by those groups.
While the benefits highlighted may be more difficult to quantify, they are  no less important, and ultimately were strongly considered in  recommending continuation of the alternate engine program. These  studies concluded that the program would    maintain the industrial base for fighter engine technology,  instill contractor incentives for better performance,    ensure an operational alternative if the current engine developed    enhance international participation.
We spoke with government officials from various organizations who  widely concurred with our analysis of the potential benefits of engine  competition. Many of these were important benefits realized by past  competitions such as that for the Air Force F-16 aircraft engines.  Discussions with the Air Force engine manager who co led both advisory  group studies explained that these benefits are valuable when trying to  manage significant numbers of fighter-type engines to ensure combat  readiness. He told us that problems are magnified when trying to manage a  single engine system, which can require substantial manpower and extra  hours to keep aircraft flying when engine problems occur. In his opinion,  the benefits of a dual-source engine would outweigh the costs. He stated  that he had not seen anything that would change this conclusion since the  last advisory group study was conducted.
The ability of competition to deliver such benefits is important for the JSF  program. In addition to considering engine price, the program office has  identified a range of potential criteria for competition during the  production and support phases of the program, which could include other  costs, reliability, and sustainability. It is reasonable to assume that  competition under these criteria may drive better engine performance and  reliability over the life of the program. Such improvements can positively  affect fleet readiness and schedule outcomes while avoiding costs in  various other areas for the JSF program.
Another potential benefit of having an alternate engine program, and one  also supported by the program advisory group studies, is to reduce the risk  that a single point, systemic failure in the engine design could substantially  affect the fighter aircraft fleet. Though current performance data indicate  it is unlikely that engine problems would lead to fleet wide groundings in  modern aircraft, having two engine sources for the single-engine JSF  further reduces this risk as it is more unlikely that such a problem would  occur to both engine types at the same time. Because the JSF is expected  to be the primary fighter aircraft in the U.S. inventory, and Pratt & Whitney  will also be the sole-source provider of F119 engines for the F-22A  aircraft, DOD is faced with the potential scenario where almost the entire  fleet could be dependent on similar engine cores, produced by the same  contractor in a sole-source environment.

	Past Engine Programs Show Potential Benefits from Competition

Results from past competitions provide evidence of potential financial and  non financial savings that can be derived from engine programs. One  relevant case study to consider is the “Great Engine War” of the 1980s— the competition between Pratt & Whitney and General Electric to supply  military engines for the F-16 and other fighter aircraft programs. At that  time all engines for the F-14 and F-15 aircraft were being produced on a  sole-source basis by Pratt & Whitney, which was criticized for increased  procurement and maintenance costs, along with a general lack of  responsiveness with regard to government concerns about those  programs. For example, safety issues on the single-engine F-16 aircraft  were seen as having greater consequences than the twin-engine F-14 or   F-15 aircraft. To address concerns, the Air Force began to fund the  development and testing of an alternate engine to be produced by General  Electric; the Air Force also supported the advent of an improved  derivative of the Pratt & Whitney engine. Beginning in 1983, the Air Force  initiated a competition that Air Force documentation suggests resulted in  significant cost savings in the program. For example, in the first 4 years of  the competition, when actual costs are compared to the program’s  baseline estimate, results included    nearly 30 percent cumulative savings for acquisition costs,  roughly 16 percent cumulative savings for operations and support  costs, and  total savings of about 21 percent in overall life cycle costs.
While sole-source competitions have been the general rule for engine  program strategies, evidence shows that when competition was utilized for  even part of those programs, positive outcomes were often realized. Other  than the Great Engine War, there have been a number of U.S. competitions  for modern fighter engines, including those for the F-15, F/A-18, and F-22A  fighter aircraft. During the course of this review, government and  contractor personnel told us that the difference between these programs  and the F-16 was that competition was limited to only one phase of the  program (i.e., program initiation or production phase). For example, the  General Electric F404 engine, which today powers the Navy F/A-18 aircraft  and the Air Force F-117A aircraft, was competed in the mid-1980s. In that  case, the Navy had decided to upgrade the A-6 aircraft to the A-6F model  with two F404 engines, thereby increasing the number of F404 engines in  the fleet. The Navy leadership recommended a second source for that  engine, and Pratt & Whitney was awarded a “build-to-print” contract,  which meant it would produce additional F404 engines according to the  General Electric design. While this competition did provide some  improvements in contractor responsiveness, government and contractor  officials told us this was not an optimum competitive environment as it  provided no design competition.
The Great Engine War was able to generate significant benefits because  competition incentivized contractors to improve designs and reduce costs  during production and sustainment. Competitive pressure continues today  as the F-15 and F-16 aircraft are still being sold internationally. While the  other competitions resulted in some level of benefits, especially with  regard to contractor responsiveness, they did not see the same levels of  success absent continued competitive pressures.

	JSF Program Could Have Long-term Impact on Industrial Base

The economic stakes in the JSF engine program are likely to be high given  the size of the program, international participation, and the expected  supplier base. Participation in the development, production, and support  of the JSF engine program will position Pratt & Whitney, the Fighter  Engine Team, and their respective supplier base to compete for future  military development and acquisition programs. According to government  officials, Pratt & Whitney faces a decline in the area of large commercial  engines, which could result in a shift of workforce and overhead costs to  military programs. While it is the sole-source provider of the engine for the  Air Force F-22A aircraft, production will likely end in 2012 for that  program. Pratt & Whitney will at a minimum provide at least some of the  engines for the JSF program, the extent to which is to be determined by  whether or not the Fighter Engine Team remains a competitor and, if so,  the amount of contract awards that company can win. Should the JSF  program suffer substantial schedule slips beyond 2011 or 2012, the gap  between the end of F-22A production and the onset of JSF production  could grow, resulting in workforce disruptions or other negative effects.
General Electric is a significant entity in the market for large commercial  engines. However, the company faces declining production within its other  fighter engine programs, such as the Navy’s F/A-18E/F, which could result  in erosion of specialized skills should the company not continue as a  participant in the JSF program. While the overall health of the company is  very strong, business decisions as to where to invest company resources  could favor the commercial side, should military business decline  substantially.
Due to the size of the JSF program, the industrial base implications reach  far beyond Pratt & Whitney and the Fighter Engine Team. With JSF  contracts awarded to suppliers within both the U.S. and international  partner countries, JSF propulsion production and support business will  contribute to the global engine industrial base for almost 60 years. While  companies that participate are likely to see increased business  opportunities, if the JSF comes to dominate the market for tactical  aircraft, as DOD expects, companies that are not part of the program   could see tactical aircraft business decline.

	Concluding Observations

DOD officials noted in 2006 that canceling the F136 engine program would  save DOD $1.8 billion in needed investments over the remaining   7 years of development, which could be used to fund higher-priority  programs. According to our analysis that figure is now $1.4 billion; and  does not include the approximately $2.2 billion to $3.1 billion of additional  investments for procurement, production support, and stand-up  investments necessary for competition. However, our analysis indicates  that this investment may be recouped under a competitive approach if it  generates savings of 10.3 to 12.3 percent. Historical data indicate that it is  reasonable to assume savings of that much and more. Choices made today  will ripple forward and influence additional, and perhaps even more  challenging, decisions in the future. The JSF engine acquisition strategy is  one such choice facing DOD today. The results of our work indicate that  with the proper structure and attention, and the up-front investments, the  alternate engine can ultimately recover those investments and potentially  provide additional benefits to the program. Prior engine programs and  more recent DOD studies and analyses also suggest these outcomes to be  reasonable. DOD is now faced with prioritizing its short-term needs  against potential long-term payoffs through competition for JSF engine  development, procurement, and sustainment.
Mr. Chairmen, this concludes my prepared statement. I will be happy to  answer any questions you or other members of the subcommittee may  have.

	Contacts and Acknowledgments

For future questions regarding this testimony, please contact   Michael J. Sullivan, (202) 512-4841. Individuals making key contributions  to this testimony include Brian Mullins, Assistant Director;   J. Kristopher Keener; Daniel Novillo; Greg Campbell; Charles Perdue; and  Adam Vodraska.

	GAO Related Products

Joint Strike Fighter: Progress Made and Challenges Remain, GAO-07-360.  Washington, D.C.: Mar. 15, 2007.
Tactical Aircraft: DOD’s Cancellation of the Joint Strike Fighter  Alternate Engine Program Was Not Based on a Comprehensive Analysis,  GAO-06-717R. Washington, D.C: May 22, 2006.
Recapitalization Goals Are Not Supported By Knowledge-Based F-22A  and JSF Business Cases, GAO-06-487T. Washington, D.C.: Mar. 16, 2006.
Joint Strike Fighter: DOD Plans to Enter Production before Testing  Demonstrates Acceptable Performance, GAO-06-356. Washington, D.C.:  Mar. 15, 2006.
Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications  for Tactical Aircraft Modernization, GAO-05-519T. Washington, D.C.:   Apr. 6, 2005.
Defense Acquisitions: Assessments of Selected Major Weapon Programs,   GAO-05-301.Washington, D.C.: Mar. 31, 2005.
Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike  Fighter Program with Different Acquisition Strategy, GAO-05-271.  Washington D.C.: Mar. 15, 2005.
Tactical Aircraft: Status of F/A-22 and JSF Acquisition Programs and  Implications for Tactical Aircraft Modernization, GAO-05-390T.  Washington, D.C.: Mar. 3, 2005.
Joint Strike Fighter Acquisition: Observations on the Supplier Base,  GAO-04-554. Washington, D.C.: May 3, 2004.
Joint Strike Fighter Acquisition: Managing Competing Pressures Is  Critical to Achieving Program Goals, GAO-03-1012T. Washington, D.C.:  July 21, 2003.

Appendix I: Scope and Methodology

In conducting our analysis of costs for the Joint Strike Fighter (JSF)  engine program, we relied primarily on program office data. We did not  develop our own source data for development, production, or sustainment  costs. In assessing the reliability of data from the program office, we  compared that data to contractor data and spoke with agency and other  officials and determined that the data were sufficiently reliable for our  review.
Other base assumptions for the review are as follows:    Unit recurring flyaway cost includes the costs associated with  procuring one engine and certain nonrecurring production costs; it  does not include sunk costs, such as development and test, and  other costs to the whole system, including logistical support and  construction.
Engine procurement costs reflect only U.S. costs, but assumes the  quantity benefits of the 646 aircraft currently anticipated for foreign  partner procurement.
Competition, and the associated savings anticipated, begins in fiscal  year 2012.
Engine maturity, defined as 200,000 flight hours with at least   50,000 hours in each variant, is reached in fiscal year 2012.
Two years are needed for delivery of aircraft.    Aircraft life equals 30 years at 300 flight hours per year.
For the sole-source Pratt & Whitney F135 engine scenario, we calculated  costs as follows:  Development    Relied on JSF program office data on the remaining cost of the Pratt  & Whitney development contract. We considered all costs for  development through fiscal year 2007 to be sunk costs and did not  factor them into analysis.
Production    For cost of installed engine quantities, we multiplied planned JSF  engine quantities for U.S. aircraft by unit recurring flyaway costs  specific to each year as derived from cost targets and a learning  curve developed by the JSF program office.
For the cost of production support, we relied on JSF program office  cost estimates for initial spares, training, support equipment, depot  stand-up, and manpower related to propulsion. Because the JSF  program office calculates those numbers to reflect two contractors,  we applied a cost reduction factor in the areas of training and  manpower to reflect the lower cost to support only one engine type.
Sustainment    For sustainment costs, we multiplied the planned number of U.S.  fielded aircraft by the estimated number of flight hours for each  year to arrive at an annual fleet total. We then multiplied this total  by JSF program office estimated cost per engine flight hour specific  to each aircraft variant.
Sustainment costs do not include a calculation of the cost of engine  reliability or technology improvement programs.
For a competitive scenario between the Pratt & Whitney F135 engine and  the Fighter Engine Team (General Electric and Rolls-Royce), we  calculated costs as follows:  Development    We used current JSF program office estimates of remaining  development costs for both contractors and considered all costs for  development through fiscal year 2007 to be sunk costs.
Production    We used JSF program office data for engine buy profiles, learning  curves, and unit recurring flyaway costs to arrive at a cost for  installed engine quantities on U.S. aircraft. We performed  calculations for competitive production quantities under 70/30 and  50/50 production quantity award scenarios.
We used JSF program office cost estimates for production support  under two contractors. We assumed no change in support costs  based on specific numbers of aircraft awarded under competition,  as each contractor would still need to support some number of  installed engines and provide some number of initial spares.
Sustainment    We used the same methodology and assumptions to perform the  calculation for sustainment costs in a competition as in the   sole-source scenario.
Savings    We analyzed actual cost information from past aircraft propulsion  programs, especially that of the F-16 aircraft engine, in order to  derive the expected benefits of competition and determine a  reasonable range of potential savings.
We applied this range of savings to the engine life cycle, including  recurring flyaway costs, production support, and sustainment. We  assumed costs to the government could decrease in any or all of  these areas as a result of competitive pressures.
We did not apply any savings to the system development and  demonstration phase or the first five production lots because they  are not fully competitive. However, we recognize that some savings  may accrue as contractors prepare for competition.
In response to the request to present our cost analyses in constant dollars,  then year dollars, and using net present value, we:    calculated all costs using constant fiscal year 2002 dollars,    used separate JSF program office and Office of the Secretary of  Defense inflation indices for development, production,  production support, and sustainment to derive then year dollars;  when necessary for the out years, we extrapolated the growth of  escalation factors linearly; and    utilized accepted GAO methodologies for calculating discount  rates in the net present value analysis.
No cost analysis was performed for the scenario where a fixed-price  contract would be awarded in fiscal year 2008 for the entire life of the  engine program because neither the contractor nor the Department of  Defense calculates the necessary cost data. During our discussions with  both DOD officials and contractor representatives, it was determined that  neither viewed a fixed-price contract as a viable option for which they  could quantify a risk premium.
We did not perform cost analyses of alternative strategies, as we  determined no other alternative could be implemented without disruption  to the JSF program’s cost and schedule.
Our analysis of the industrial base does not independently verify the  relative health of either contractors’ suppliers or workload.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.

Summary:
Why GAO Did This Study

The Joint Strike Fighter (JSF) is the linchpin of future Department of Defense (DOD) tactical aircraft modernization efforts because of the sheer size of the program and its envisioned role as the replacement for hundreds of aircraft that perform a wide variety of missions in the Air Force, Navy, and Marine Corps. DOD implemented the JSF alternate engine development program in 1996 to provide competition between two engine manufacturers in an effort to achieve cost savings, improve performance, and gain other benefits. This testimony focuses on GAO's cost analysis performed in response to Section 211 of the John Warner National Defense Authorization Act for Fiscal Year 2007. We examined the following areas: (1) sole-source and competitive scenarios for development, production, and sustainment of the JSF engine, (2) results of past engine programs and their related strategies, and (3) impact on the industrial base in the event of the complete cancellation of the JSF alternate engine program. DOD did not provide comments on our findings.

What GAO Found

Continuing the alternate engine program for the Joint Strike Fighter would cost significantly more than a sole-source program but could, in the long run, reduce costs and bring other benefits. The current estimated life cycle cost for the JSF engine program under a sole-source scenario is $53.4 billion. To ensure competition by continuing to implement the JSF alternate engine program, an additional investment of $3.6 billion to $4.5 billion may be required. However, the associated competitive pressures from this strategy could result in savings equal to or exceeding that amount. The cost analysis we performed suggests that a savings of 10.3 to 12.3 percent would recoup that investment, and actual experience from past engine competitions suggests that it is reasonable to assume that competition on the JSF engine program could yield savings of at least that much. In addition, DOD-commissioned reports and other officials have said that nonfinancial benefits in terms of better engine performance and reliability, improved industrial base stability, and more responsive contractors are more likely outcomes under a competitive environment than under a sole-source strategy. DOD experience with other aircraft engine programs, including the F-16 fighter in the 1980s, has shown competitive pressures can generate financial benefits of up to 20 percent during the life cycle of an engine program and/or improved quality and other benefits. The potential for cost savings and performance improvements, along with the impact the engine program could have on the industrial base, underscores the importance and long-term implications of DOD decision making with regard to the final acquisition strategy solution.