F-35 Joint Strike Fighter: Preliminary Observations on Program Progress
Published: 2016-03-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: With estimated acquisition costs of nearly $400 billion, the F-35 Joint Strike Fighter—also known as the Lightning II — is DOD's most costly acquisition program. Since 2001, GAO has reported extensively on the F-35 program's cost, schedule, and performance problems. The program plans to begin increasing production rates over the next few years.
The National Defense Authorization Act for Fiscal Year 2015 contains a provision for GAO to annually review the F-35 acquisition program. Today's testimony is based on ongoing work for the first report under this mandate, which GAO expects to issue in April 2016.This testimony focuses on GAO's preliminary observations regarding the F-35 program's (1) future modernization (2) affordability, remaining development, and ongoing manufacturing plans.
GAO analyzed program documentation including management reports, test data and results, and internal DOD program analyses. GAO collected data on F-35 development and test progress, and analyzed total program funding requirements. GAO also collected and analyzed production and supply chain performance data, and interviewed DOD, program, and contractor officials.
In light of its ongoing work, GAO is not making any recommendations at this time.
section_title: What GAO Found
paragraphs: GAO's ongoing work on the F-35 Joint Strike Fighter (F-35) program shows that the Department of Defense (DOD) has begun planning and funding significant new development work to add to the F-35's capabilities, an effort known as Block 4. The funding needed for this effort is projected to be nearly $3 billion over the next 6 years (see figure below), which would qualify it as a major defense acquisition program in its own right.
DOD does not currently plan to manage Block 4 as a separate program with its own acquisition program baseline but rather as part of the existing baseline. As a result, Block 4 will not be subject to key statutory and regulatory oversight requirements, such as providing Congress with regular, formal reports on program cost and schedule performance. A similar approach was initially followed on the F-22 Raptor modernization program, in which the funding and content were comingled making it difficult to separate the performance and cost of the modernization from the baseline program. Best practices recommend an incremental approach in which new development efforts are structured and managed as separate acquisition programs with their own requirements and acquisition program baselines. The F-22 eventually adopted such an approach. If the Block 4 effort is not established as a separate acquisition program, cost, schedules, and the scope of the baseline and modernization efforts will be comingled. Therefore, it will be difficult for Congress to hold DOD accountable for achieving its cost, schedule, and performance requirements.
GAO's ongoing work indicates that although the F-35 total program acquisition costs have decreased since 2014, the program continues to face significant affordability challenges. DOD plans to begin increasing production and expects to spend more than $14 billion annually for nearly a decade on procurement of F-35 aircraft. Currently, the program has around 20 percent of development testing remaining, including complex mission systems software testing, which will be challenging. Program officials continued to address many of the key technical risks, but the Autonomic Logistics Information System continues to be a challenge. At the same time, the contractors that build the F-35 airframes and engines continue to report improved manufacturing efficiency and supply chain performance.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our ongoing work on the F-35  Joint Strike Fighter (F-35), also known as the Lightning II. With estimated  acquisition costs approaching $400 billion, the F-35 is the Department of  Defense’s (DOD) most costly acquisition program. Through this program,  DOD is developing and fielding a family of strike fighter aircraft,  integrating low observable (stealth) technologies with advanced sensors  and computer networking capabilities for the United States Air Force,  Navy, and Marine Corps, as well as eight international partners. The F- 35 family is comprised of the F-35A conventional takeoff and landing  variant, the F-35B short takeoff and vertical landing variant, and the F- 35C carrier-suitable variant. Over time, the program has made a number  of changes affecting the planned quantities and associated costs.  According to current projections, the U.S. portion of the program will  require acquisition funding of $12.7 billion a year, on average, from now  through 2038 to complete development and procurement of 2,457 aircraft.  DOD also estimates that the F-35 fleet will cost around $1 trillion to  operate and support over its lifetime, which poses significant long-term  affordability challenges for the department.
As we have previously reported, the F-35 program’s significant cost,  schedule, and performance problems can largely be traced to (1)  decisions made at key junctures without adequate product knowledge;  and (2) a highly concurrent acquisition strategy with significant overlap  among development activities, flight testing, and production.  This  testimony is based on preliminary observations from our latest annual  review of the overall F-35 program. Our work for the ongoing review is  being conducted in response to a provision of the National Defense  Authorization Act for Fiscal Year 2015, for GAO to review the F-35  acquisition program annually until the program reaches full-rate  production. This statement, similar to our ongoing work, assesses: (1)  future modernization; (2) program cost and affordability; (3) remaining  development and testing; and (4) ongoing manufacturing including supply  chain performance. We plan to issue our final report in April 2016.
For our ongoing work, we reviewed budget documents to identify costs  associated with the future modernization effort and collected and  analyzed information regarding capability and oversight plans. We  reviewed and analyzed best practices identified by GAO and reviewed  relevant DOD policies and statutes. To assess cost and affordability, we  reviewed and analyzed program funding requirements through 2038 and  compared cost information as of March 2016 to prior years. To assess  ongoing development and testing we reviewed and analyzed test data  and results, program briefings, and internal program analyses. To assess  ongoing manufacturing and supply chain performance, we collected and  analyzed manufacturing and supply chain performance data from  Lockheed Martin, Pratt & Whitney, and DOD. We assessed the reliability  of the cost, schedule, and performance data by reviewing supporting  documentation and interviewing knowledgeable officials. Based on these  steps, we determined that all of the data we used were sufficiently reliable  for the purposes of this report. We discussed the information in this  statement with DOD officials and incorporated their comments as  appropriate. The ongoing work on which this statement is based is being  conducted in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
In brief, our preliminary results indicate that DOD plans to manage F-35  modernization as part of the existing program baseline, which has  oversight implications. DOD has begun planning and funding significant  new development work to add to the F-35’s capabilities, known as Block  4. The funding needed for this effort is projected to be nearly $3 billion  over the next 6 years, which would qualify it as a major defense  acquisition program in its own right. DOD does not currently plan to  manage Block 4 as a separate program with its own acquisition program  baseline but rather as part of the existing baseline. As a result, Block 4  will not be subject to key statutory and regulatory oversight requirements,  such as providing Congress with regular, formal reports on program cost  and schedule performance. A similar approach was initially followed on  the F-22 Raptor modernization program, making it difficult to separate the  performance and cost of the modernization from the baseline program.  Best practices recommend an incremental approach in which new  development efforts are structured and managed as separate acquisition  programs with their own requirements and acquisition program baselines.  The F-22 eventually adopted this approach. If the Block 4 effort is not  established as a separate acquisition program, transparency will be  limited. Therefore, it will be difficult for Congress to hold DOD  accountable for achieving its cost, schedule, and performance  requirements.
In addition, our ongoing work indicates that although the estimated F-35  program acquisition costs have decreased since 2014 the program  continues to face significant affordability challenges. DOD plans to  increase annual spending on F-35 aircraft procurements over the next 5  years and expects to need more than $14 billion annually for most of the  following decade. Moreover, the program’s total operating and  sustainment costs are estimated to be around $1 trillion which some  within the Office of the Secretary of Defense have stated is unaffordable.  Currently, the program has around 20 percent of development testing  remaining, including complex mission systems software testing, which will  be challenging. The program continues to address technical risks but  challenges with the Autonomic Logistics Information System (ALIS)  remain. At the same time, the contractors that build the F-35 airframes  and engines continue to report improved manufacturing efficiency and  supply chain performance.
subsections: section_title: DOD’s Approach to Managing Follow-on Modernization May Hinder Transparency and Oversight
paragraphs: The F-35 program has begun planning and funding the development of  new capabilities, known as follow-on modernization, but our ongoing work  indicates that DOD’s current plan for managing the development of these  new capabilities may limit transparency and oversight. The current F-35  development program is projected to end in 2017, when Block 3F  developmental flight testing is complete, with a total development cost of  $55 billion. The first increment of follow-on modernization, known as  Block 4, is expected to add new capabilities and correct deficiencies of 9  capabilities carried over from the current development program such as  the prognostics health management system down-link and  communication capabilities. Although the requirements are not yet final  and no official cost estimate has been developed for Block 4, DOD’s fiscal  year 2017 budget request indicates that the department expects to spend  nearly $3 billion on these development efforts over the next 6 years (see  figure 1).
Our preliminary analysis indicates that F-35 Block 4 development costs of  this magnitude would exceed the statutory and regulatory thresholds for  what constitutes a major defense acquisition program (MDAP), and it  would be larger than many of the MDAPs in DOD’s current portfolio.  However, in August 2015, the Under Secretary of Defense for Acquisition,  Technology, and Logistics issued an Acquisition Decision Memorandum  directing the F-35 program office to manage Block 4 development under  the existing F-35 acquisition program baseline and not as a separate  incremental acquisition program. As a result, DOD will not hold a  Milestone B review—the decision point in which program officials would  present a business case in order to initiate system development. A  Milestone B review would also set in motion oversight mechanisms  including an acquisition program baseline; Nunn-McCurdy unit cost  growth thresholds; and periodic reporting of the program’s cost,  schedule, and performance progress. These mechanisms form the basic  business case and oversight framework to ensure that a program is  executable and that Congress and DOD decision makers are informed  about the program’s progress. Best practices recommend an incremental  approach in which new development efforts are structured and managed  as separate acquisition programs and that a business case should match  requirements with resources—proven technologies, sufficient engineering  capabilities, time, and funding—before undertaking a new product  development. Because DOD does not yet have approved requirements  and is not planning to hold a Milestone B review, its approach for Block 4  modernization will not require the program to have such important cost,  schedule, and performance reporting and oversight mechanisms in place.
Based on our ongoing work, we have concerns about DOD’s approach to  Block 4 that are partly rooted in our assessment of a similar case with the  F-22 modernization program. In March 2005 we found that the Air Force  was managing its multi-billion dollar F-22 modernization efforts as part of  the program’s existing acquisition baseline and had not established a  separate knowledge-based business case. As a result, the F-22 baseline  and schedule were adjusted to reflect the new timeframes and additional  costs, comingling the funding and some content for the baseline  development and modernization efforts—some content that had not been  achieved under the baseline program were deferred into the  modernization program. When the content, scope, and phasing of  modernization capabilities changed over time, it appeared that the F-22  program was fraught with new schedule delays and further cost overruns.  The comingling of modernization efforts with the existing baseline  reduced transparency and Congress could not distinguish the new costs  associated with modernization funding from cost growth in the original  baseline. We recommended that the Air Force structure and manage F- 22 modernization as a separate acquisition program with its own business  case—matching requirements with resources—and acquisition program  baseline. Eventually, the department separated the F-22 modernization  program from the baseline program with a Milestone B review, in line with  our recommendation, which increased transparency and better facilitated  oversight. The department has the opportunity to apply similar lessons  learned to the F-35 Block 4 program.
section_title: Program Continues to Face Affordability Challenges
paragraphs: Although the estimated F-35 program’s total acquisition costs have  decreased since 2014, the program continues to face affordability  challenges. As of March 2016, DOD’s estimated total acquisition cost for  the F-35 program is $379 billion, or $12.1 billion less than it reported in  2014. The program will require an average of $12.7 billion per year to  complete the procurement of aircraft through 2038 (see figure 2).
The program expects to reach peak production rates for U.S. aircraft in  2022, at which point DOD expects to spend more than $14 billion a year  on average for a decade. At the same time, DOD will be operating and  sustaining an increasing number of fielded F-35 aircraft. DOD officials we  spoke with for our September 2014 report, stated that the current F-35  sustainment strategy with cost estimates around $1 trillion is not  affordable. When acquisition and sustainment funds are combined,  annual funding requirements could easily approach $30 billion in some  years.
Our preliminary results indicate that affordability challenges will  compound as the program competes with other large acquisition  programs including the long range strike bomber, KC-46A Tanker, Ohio  Class Submarine Replacement and the DDG-51 Class Destroyer. In  recent years, affordability challenges, in part, have forced the Air Force to  defer F-35 aircraft procurements to later years. Since 2014, the Air Force  has deferred 45 aircraft between 2017 and 2021 to later years. This will  likely require the military service to make unplanned investments in  extending the service life of their current fighter aircraft. The cost of  extending the lives of current fighter aircraft and acquiring other major  weapon systems, while continuing to produce and field new F-35 aircraft,  poses significant affordability risks in a period of austere defense  budgets.
section_title: Developmental Flight Testing Is Nearing Completion with Challenging Mission Systems Software Testing Remaining
paragraphs: The F-35 program is nearing the completion of the initial developmental  test program with about 20 percent of its flight sciences and mission  systems testing remaining; however our ongoing work indicates that the  remaining testing is likely to be challenging as it will require complex  missions and stressing environments. Developmental flight testing is  separated into two key areas referred to as flight sciences and mission  systems. Developmental flight science testing is done to verify the  aircraft’s basic flying capabilities, while mission systems testing is done to  verify that the software and systems that provide warfighting capabilities  function properly and meet requirements. The F-35 program is nearing  the completion of developmental flight testing with only 20 percent of its  total planned test points remaining. Before completing the remaining high  speed and high altitude flight science testing, Lockheed Martin officials  noted that they will incorporate a pressure relief valve into the aircraft’s  fuel system to allow the aircraft to fly at altitudes and speeds that are  currently restricted due to fuel pressure concerns.
As we have reported in the past, DOD is developing, testing, and fielding  mission systems capabilities in software blocks (see figure 3).
The full warfighting capability for the F-35 is to be attained with the  completion of Block 3F, the final software block in the current  development program. As indicated by the percent of test points  completed, all of the blocks leading up to 3F have been completed,  although they experienced delays in getting to this point. Block 3F has  completed 18 percent of its test points. Our preliminary findings show that  the program completed all of the mission systems software testing  planned in 2015, but completion of Block 3F testing could be challenging  given the complexity of the missions and the stressing environments that  remain to be tested. Program officials believe that the completion of 3F  developmental testing could be delayed by about 2-3 months. As of  December 2015, our preliminary analysis of program data indicated that  Block 3F testing could be delayed by as much as 6 months if the program  performs at the same rate it has in the past and is executed according to  the current plan with no additional test point growth. Delays could be  exacerbated by the current mission system software stability issues and  large number of remaining weapon delivery accuracy events that must  take place.
Our preliminary work indicates that in 2015 program officials continued to  address many of the key technical risks that we have highlighted in the  past—including an engine seal and the helmet mounted display—and  they identified some new risks. Problems with the engine seal were  addressed through a design change that was incorporated into  production, and as of September 2015, 69 of 180 engines had undergone  retrofits. A new helmet—known as the Gen III helmet—that is intended to  address shortfalls in night vision capability, among others, was developed  and delivered to the program in 2015. Developmental testing of the new  helmet is mostly complete, with final verification testing planned in 2016.  The program also identified new risks with the ejection seat and cracking  in the F-35C wing structure. Program officials discovered that pilots less  than 136 pounds could possibly suffer neck injuries during ejection.  Officials noted that although the problem was discovered during testing of  the new helmet, the helmet’s weight was not the root cause. The program  is exploring a number of possible solutions to ensure pilot safety. In  addition, program officials discovered cracking in the wing structure of the  F-35C structural test aircraft during durability testing. Structural testing  was halted for about 3 months, and Lockheed Martin officials we spoke  with stated that a long-term fix had not been identified.
Although improvements have been made, ALIS continues to pose  technical risks. Recognizing that a fully functional ALIS is critical to the  program’s overall success, in October 2015, the F-35 executive program  officer testified before Congress that ALIS is one of the most significant  technical and schedule risks to the program. ALIS is a complex system of  systems that supports operations, mission planning, supply-chain  management, maintenance, and other processes. In the past, we have  reported that ALIS software has not been delivered on time and has not  functioned as expected when it is delivered. In addition to continuing  software problems, our ongoing work indicates that the F-35 program  faces other key challenges related to ALIS. For example, some  equipment management data is inaccurate or incomplete and engine  health information is not included in the current version of ALIS. In  addition, the system may not be deployable and does not have a backup  in case the hardware system was to fail.
section_title: Ongoing Manufacturing and Reliability Progress Continue
paragraphs: Our ongoing work has shown that the F-35 airframe and engine  contractors continue to report improved efficiency and supply chain  performance, and program data indicates that reliability and  maintainability are also improving. Since 2011, a total of 154 aircraft have  been delivered to DOD and international partners, 45 of which were  delivered in 2015. As Lockheed Martin continues to deliver more  aircraft, the number of hours needed to manufacture each aircraft  continues to decline. Although prior to 2015 Lockheed Martin had only  delivered one aircraft on or ahead of its contracted delivery date, the  contractor has been making progress and in 2015 the contractor was able  to deliver 15 of the 45 aircraft on time or early. Other manufacturing data  are also trending in a positive direction. For example, scrap, rework, and  repair hours, and time spent on work conducted out of sequence continue  to decrease. Although it has improved, Lockheed Martin’s supply chain  continues to deliver parts late to production, resulting in inefficiencies and  requiring workarounds.
Engine manufacturing deliveries remain steady and 218 engines have  been delivered to date. The labor hours required for assembling engines  has remained steady and very little additional efficiency is expected. As a  result, Pratt & Whitney is looking for additional ways to save cost. Scrap,  rework, and repair costs have remained steady over the last year and  engineering design changes is relatively low and continues to decrease.  Pratt & Whitney is conducting production reviews of its supply chain and  is managing supplier quality initiatives to address shortfalls, according to  officials.
Our ongoing work shows that although the program has made progress in  improving some reliability and maintainability measures, the program  continues to fall short in some measures as shown in figure 4.
While the metrics in most areas were trending in the right direction, the F- 35 program office’s own assessment indicated that as of August 2015 the  F-35 fleet was falling short of reliability and maintainability expectations in  9 of 19 areas. The program has time to improve. As of August 2015, the  F-35 fleet had only flown a cumulative total of 35,940 hours of the  200,000 cumulative flight hours required for system maturity.
Similarly, although engine reliability improved significantly in 2015, the  engine was still not performing at expected levels. In 2014, Pratt and  Whitney data indicated that engine reliability—measured as mean flight  hours between failure (design controllable)—was very poor and we  reported in April 2015 that the engine would likely require additional  design changes and retrofits. While Pratt & Whitney has implemented a  number of design changes that have resulted in significant reliability  improvements, the F-35A and F-35B engines are still at about 55 percent  and 63 percent, respectively, of where the program expected them to be  at this point. Program and contractor officials continue to identify ways  to further improve engine reliability.
In conclusion, our preliminary results indicate that, although the F-35  development program is nearing completion, the program is not without  risks. The remaining significant and complex 3F mission systems  software developmental testing, continuing issues with ALIS, and new  issues with the ejection seat and F-35C wing structures pose ongoing  risks. Going forward, the program will likely continue to experience  affordability and oversight challenges. DOD expects that beginning in  2022 it will need more than $14 billion a year on average for a decade to  procure aircraft. It is unlikely that the program will be able to receive and  sustain such a high level of funding over this extended period, especially  given DOD’s competing resources such as the long range strike bomber  and KC-46A tanker. DOD’s plan to manage Block 4 under the current  acquisition program baseline presents oversight challenges because key  reporting requirements and oversight mechanisms will not be initiated;  therefore, the two efforts will be comingled. Without setting up the  modernization as a separate program with its own baseline and regular  reporting as best practices recommend, it will be difficult for Congress to  hold DOD accountable for achieving F-35 Block 4 cost, schedule, and  performance goals. It also makes it easier to re-categorize work planned  for the baseline program as modernization. In light of our ongoing work,  we are not making any recommendations to DOD at this time. We plan to  issue our final report in April 2016.
Chairman Turner, Ranking Member Sanchez, and members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions you may have. We look forward to  continuing to work with the Congress as we to continue to monitor and  report on the progress of the F-35 program.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information on this statement, please contact Michael Sullivan  at (202) 512-4841 or sullivanm@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals making key contributions to this statement  are Travis Masters, Peter Anderson, Jillena Roberts, and Megan Setser.
section_title: Appendix I: Changes in Reported F-35 Joint Strike Fighter Cost, Quantity, and Deliveries, 2001-2015
paragraphs: Annual projected cost estimates expressed in then-year dollars reflect inflation assumptions made by  a program.
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