Joint Strike Fighter: Impact of Recent Decisions on Program Risks
Published: 2008-03-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Joint Strike Fighter (JSF) is the Department of Defense's (DOD) most expensive aircraft acquisition program. DOD is expected to develop, procure, and maintain 2,443 aircraft at a cost of more than $950 billion. DOD plans for the JSF to replace or complement several types of aircraft in the Air Force, Navy, and Marine Corps. Given the program's cost and importance, it is critical that decisions are made within this program to maximize its benefit to the nation. This testimony highlights a number of those decisions and impacts. It (1) discusses emerging risks to the overall program, and (2) updates information for GAO's cost analysis of last year regarding sole-source and competitive scenarios for acquisition and sustainment of the JSF engine. Information on the overall program is from our mandated annual report, also issued today. GAO tracked annual cost and schedule changes, reasons for changes, decisions affecting development, and compared DOD cost estimating methodologies to best practices. For the two engines, GAO updated cost data from last year's testimony and made new projections.
section_title: What GAO Found
paragraphs: GAO believes recent DOD decisions, while potentially reducing near-term funding needs, could have long-term cost implications. DOD's recent plan to reduce test resources in order to pay for development cost overruns adds more risk to the overall JSF program. Midway through development, the program is over cost and behind schedule. Difficulties in stabilizing aircraft designs and the inefficient manufacturing of test aircraft have forced the program to spend management reserves much faster than anticipated. To replenish this reserve, DOD officials decided not to request additional funding and time for development at this time, but opted instead to reduce test resources. GAO believes this plan will hamper development testing while still not addressing the root causes of related cost increases. While DOD reports that total acquisition costs have increased by $55 billion since a major restructuring in 2004, GAO and others in DOD believe that the cost estimates are not reliable and that total costs will be much higher than currently advertised. Another restructuring appears likely--GAO expects DOD will need more money and time to complete development and operational testing, which will delay the full-rate production decision and the fielding of capabilities to the warfighter. This year, DOD is again proposing cancellation of the JSF alternate engine program. The current estimated remaining life cycle cost for the JSF engine program under a sole-source scenario is $54.9 billion. To ensure competition by continuing the JSF alternate engine program, an additional investment of about $3.5 billion to $4.5 billion may be required. However, potential advantages from a competitive strategy could result in savings equal to or exceeding that amount across the life cycle of the engine. GAO's updated cost analysis suggests that a savings of 9 to 11 percent--about 2 percent less than what GAO estimated last year--would recoup that investment. Also, as we noted last year, prior experience indicates that it is reasonable to assume that competition on the JSF engine program could yield savings of at least that much. Further, non financial benefits in terms of better engine performance and reliability, more responsive contractors, and improved industrial base stability are more likely outcomes under a competitive environment than under a sole-source strategy. While cancellation of the program provides needed funding in the near term, recent test failures for the primary JSF engine underscore the importance and long-term implications of DOD decision making with regard to the ultimate engine acquisition approach.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Joint Strike Fighter (JSF)  program. The JSF is the linchpin of future Department of Defense (DOD)  tactical aircraft modernization efforts because of the program’s sheer size  and envisioned role to replace or complement several different types of  aircraft providing a wide variety of missions in the Air Force, Navy, and  Marine Corps. Given the program’s cost and military importance, it is  critical that decisions are made within this program to maximize its  benefit to the nation. Today, my testimony highlights a number of those  decisions by (1) discussing emerging risks to the overall program and (2)  updating information for the cost analysis we performed last year  regarding sole-source and competitive scenarios for development,  production, and sustainment of the JSF engine. Information on the overall  program risks is taken from our annual mandated report, also being issued  today. Using updated cost data, we projected cost and savings for one   and two engine programs utilizing the parameters and overall  methodology from our testimony of last year.  Appendix I describes our  scope and methodology.  For this testimony, we conducted a performance  audit from February 2008 to March 2008 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.
subsections: section_title: Background
paragraphs: 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 aircraft,  mean the future financial investment will be significant. DOD is expected  to develop, procure, and maintain 2,443 operational aircraft at a cost of  more than $950 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 the number of aircraft expected for  international sales (a minimum of 646 aircraft and potentially as many as  3,500). Finally, because a number of current U.S. aircraft will either be  replaced by or used in conjunction with the JSF, the program is critical for  meeting future force requirements.
The JSF program began in November 1996 with a 5-year competition  between Lockheed Martin and Boeing to determine the most capable and  affordable preliminary aircraft design. Lockheed Martin won the  competition. The program entered system development and demonstration  in October 2001. At that time, officials planned on a 10½ years  development period costing about $34 billion (amount includes about $4  billion incurred before system development start). By 2003, system  integration efforts and a preliminary design review revealed significant  airframe weight problems that affected the aircraft’s ability to meet key  performance requirements. Weight reduction efforts were ultimately  successful but added substantially to program cost and schedule  estimates. In March 2004, DOD rebaselined the program, extending  development by 18 months and adding about $7.5 billion to development  costs. In total, estimated development costs for the JSF are now about $10  billion more than at start of system development.
In August 2005, DOD awarded a $2.1 billion contract for alternate engine  system development and demonstration, of which more than $1 billion has  been appropriated to date. Since awarding that contract, DOD’s last three  budget submissions have included no funding for the alternate engine  program and DOD has proposed canceling it, stating that (1) no net  acquisition 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 have previously reported that DOD’s analysis  to support this decision focused only on the potential up-front savings in  engine procurement costs. That analysis, along with statements made  before this committee last year, inappropriately included cost already  sunk in the program and excluded long-term savings that might accrue  from competition for providing support for maintenance and operations  over the life cycle of the engine.
In fiscal year 2007, the program office awarded the first of three annual  production contracts to Pratt & Whitney for its F135 engine. Under that  acquisition strategy, the program then planned to award noncompetitive  contracts to both Pratt & Whitney and to the Fighter Engine Team in fiscal  years 2010 and 2011. Beginning in fiscal year 2012, the program planned to  award contracts 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, which  traditionally have accounted for 72 percent of a program’s life cycle costs.
section_title: Recent Decisions by DOD Add to Overall JSF Program Risk
paragraphs: Today, we are issuing our latest report on the JSF acquisition program,  the fourth as mandated in the Ronald W. Reagan National Defense  Authorization Act for Fiscal Year 2005. In our report we acknowledge the  challenges in managing such a complex and ambitious acquisition and cite  recent progress in refining system requirements, forging production  agreements with international partners, and beginning flight testing of the  prototype aircraft and a flying test bed. DOD also extended the  procurement period for 7 years, reducing annual quantities and the rate of  ramp up to full production. These actions somewhat lessened, but did not  eliminate, the undue concurrency of development and production we have  previously reported.
We also report continuing cost increases and development risks resulting  from recent decisions by DOD to eliminate test resources to replenish  needed management reserve funds. We expect that DOD will eventually  need more money and time to complete development and operational  testing, potentially delaying the full-rate production decision now planned  for October 2013. We further report that the official program cost estimate  before the Congress is not reliable for decision-making, based on our  assessment of estimating methodologies compared to best practice  standards. With almost 90 percent of the acquisition program’s spending  still ahead, it is important to address these challenges, effectively manage  future risks, and move forward with a successful program that meets ours’  and our allies’ needs.
subsections: section_title: Program Cost Estimate Increased Since Last Year
paragraphs: DOD reported that total acquisition cost estimate increased by more than  $23 billion since our last report in March of 2007, and $55 billion since the  program underwent a major restructure in 2004. Recent increases in the  procurement cost estimate were principally due to (1) extending the  procurement period seven years at lower annual rates; (2) increases to  future price estimates based on contractor proposals for the first  production lot, and (3) airframe material cost increases. The official  development cost estimate remained about the same. However, this was  largely achieved by reducing requirements, not fully funding the alternate  engine program despite congressional interest in the program, and  reducing test resources in order to replenish management reserve funds  which were spent much faster than budgeted. Table 1 shows the evolution  in costs, unit costs, quantities, and deliveries since the start of the JSF’s  system development and demonstration program.
section_title: JSF Development Program Faces Increased Risks of Further Cost Increases and Schedule Delays
paragraphs: Midway through its planned 12-year development period, the JSF program  is over cost and behind schedule. The program has spent two-thirds of its  budgeted funding on the prime development contract, but estimates that  only about one-half of the development work has been completed. The  contractor has extended manufacturing schedules several times and test  aircraft delivery dates have continually slipped. Repercussions from late  release of engineering drawings to the manufacturing floor, design  changes, and parts shortages continue to cause delays in maturing  manufacturing processes and force inefficient production line  workarounds.
These design and manufacturing problems depleted management reserve  funds to an untenable level in 2007. Facing a probable contract cost  overrun, DOD officials decided not to request additional funding and time  for development, opting instead to reduce test resources in order to  replenish management reserves from $400 million to $1 billion. The  decision to replenish management reserves by reducing test resources,  known as the Mid-Course Risk Reduction Plan, was ratified by OSD in  September 2007. It eliminated two development test aircraft (reducing the  total from 15 to 13), reduced flight tests, revised test verification plans,  and accelerated the reduction in the prime contractor’s development  workforce. Officials from several prominent defense offices objected to  specific elements of the plan because of risks to the test program and  because it did not treat the root causes of production and schedule  problems.
We agree with this prognosis and believe the mid-course plan should be re- evaluated to address these concerns, examine alternatives, and correct the  causes of management reserve depletion. The plan significantly increases  the risks of not completing development testing on time and not finding  and fixing design and performance problems until late into operational  testing and production, when it is more expensive and disruptive to do so.  It also does not directly address and correct the continuing problems that  caused the depletion in management reserves. This increases the risk that  development costs will increase substantially and schedules will be further  delayed. The flight test program has barely begun, but faces substantial  risks with reduced assets as design and manufacturing problems continue  to cause delays that further compress the time available to complete  development. We expect that DOD will have to soon restructure the JSF  program to add resources and extend the development period, likely  delaying operational testing, the full-rate production decision, and  achievement of initial operational capabilities.
section_title: JSF Program Cost Estimate Is Not Reliable
paragraphs: We do not think the official JSF program cost estimate is reliable when  judged against cost estimating standards used throughout the federal  government and industry. Specifically, the program cost estimate: (1) is  not comprehensive because it does not include all applicable costs,  including $6.8 billion for the alternate engine program; (2) is not accurate  because some of its assumptions are optimistic and not supportable—such  as applying a weight growth factor only half as large as historical  experience on similar aircraft—and because the data system relied upon  to report and manage JSF costs and schedule is deficient; (3) is not well  documented in that it does not sufficiently identify the primary methods,  calculations, results, rationales and assumptions, and data sources used to  generate cost estimates; and (4) is not credible according to individual  estimates from OSD’s Cost Analysis Improvement Group, the Defense  Contract Management Agency, and the Naval Air Systems Command.
All three of these defense offices concluded that the official program cost  estimate is understated in a range up to $38 billion and that the  development schedule is likely to slip from 12 to 27 months. Despite this  and all the significant events and changes that have occurred in the 6 years  since the start of system development, DOD does not intend to accomplish  another fully documented, independent total program life-cycle cost  estimate for another 6 years. Twelve years between high-fidelity estimates  is not acceptable in our view, especially given the size of the JSF program,  its importance to our and our allies’ future force structures, the changes in  cost and quantity in the intervening years, and the unreliability of the  current estimate.
Based on the evidence we collected, we believe a new estimate will likely  be much higher than now reported. In addition to the higher estimates  made by the three independent defense organizations, we determined that:    DOD has identified billions of dollars in unfunded requirements that  are not in the program office estimate, including additional tooling and  procurement price hikes.
A new manufacturing schedule in the works indicates continued  degradation in the schedule and further extends times for first flights.
Both the aircraft and engine development contracts have persistent,  substantial cost variances that cost analysts believe are too large and  too late in the program to resolve without adding to budget.
The prime contractor and program office are readying a new estimate  needed to complete the program, which is expected to be much larger  than what is now budgeted.
section_title: JSF Faces Challenges as Program Moves Forward
paragraphs: The first and foremost challenge for the JSF program is affordability. From  its outset, the JSF goal was to develop and field an affordable, highly  common family of strike aircraft. Rising unit procurement prices and  somewhat lower commonality than expected raise concerns that the  United States and its allies may not be able to buy as many aircraft as  currently planned. The program also makes unprecedented demands for  funding from the defense budget—averaging about $11 billion each year  for the next two decades—and must compete with other priorities for the  shrinking federal discretionary dollar. Figure 1 compares the current  funding profile with two prior projections and shows the impact from  extending procurement 7 more years to 2034. This reduced mid-term  annual budget requirements, but added $11.2 billion to the total  procurement cost estimate.
Further, informed by more knowledge as the program progresses, DOD  doubled its projection of JSF life-cycle operating and support costs  compared to last year’s estimate and its expected cost per flight hour now  exceeds the F-16 legacy fighter it is intended to replace. With almost 90  percent (in terms of dollars) of the acquisition program still ahead, it is  important to address these challenges, effectively manage future risks, and  move forward with a successful program that meets our military needs, as  well as those of our allies.
section_title: Engine Competition Benefits Could Outweigh Costs
paragraphs: As we noted in testimony before this committee last year, the acquisition  strategy for the JSF engine must weigh expected costs against potential  rewards. Without competition, the JSF program office estimates that it will  spend $54.9 billion over the remainder of the F135 engine program. This  includes cost estimates for completing system development, procurement  of 2,443 engines, production support, and sustainment. Due primarily to  the money spent on the engine program over the past year, thereby  increasing the sunk costs in our calculations, we believe competition  could provide an even better return on investment than our previous  assessment. Additional investment of between $3.5 billion to $4.5 billion  may be required should the Department decide to continue competition.  While Pratt & Whitney design responsibilities and associated costs may  actually be reduced under a sole-source contract, we remain confident  that competitive pressures could yield enough savings to offset the costs  of competition over the program’s life. This ultimately will depend on the  final approach for the competition, the number of aircraft actually  purchased, and the 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 9 to 11 percent savings—about 2 percent less than  we estimated previously. According to actual Air Force data from past  engine programs, including the F-16 aircraft, we still believe it is  reasonable to expect savings of at least that much.
subsections: section_title: Sole-Source Approach Results in Reduced Upfront Costs
paragraphs: The cost of the Pratt & Whitney F135 engine is estimated to be $54.9  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 2 shows the costs remaining  to develop, procure, and support the Pratt & Whitney F135 engine on a  sole-source basis.
In addition to development of the F135 engine design, Pratt & Whitney also  has responsibility for the common components that will be designed and  developed to go on all JSF aircraft, regardless of which contractor  provides the engine core. This responsibility supports the JSF program  level 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 the F136, the alternate engine.
section_title: JSF Engine Competition Could Result in Future Savings
paragraphs: 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. Our analysis last  year, and again for this statement, 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 an annual  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 about $4.5 billion under the first  scenario and about $3.5 billion under the second scenario. Table 3 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 volume that is accounted  for in the projected unit recurring flyaway costs used to construct each  estimate. The other costs include approximately $1.1 billion for remaining  F136 development and $116 million in additional standup costs, which  would be the same under either competitive scenario.
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 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, while much of the expected savings do not  accrue for decades. As such, we include a net present value calculation  (time value of money) in the analysis that, once applied, provides for a  better estimate of program rate of return.
When we apply overall savings expected from competition, our analysis  indicates that recoupment of those initial investment costs would occur at  somewhere between 9 and 11 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 9  percent savings—1.3 percent less than we estimated before. A competitive  scenario where both contractors receive 50 percent of the production  aircraft reaches this point at 11 percent savings—again about 1.3 percent  less than last year. 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.
section_title: Past Engine Programs Show Potential Financial Benefits from Competition
paragraphs: 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. Beginning in 1983, the Air Force initiated a competition that  resulted in significant cost savings in the program. For example, in the first  4 years of the competition, when comparing actual costs 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.
The Great Engine War was able to generate significant benefits because  competition incentivized contractors to improve designs and reduce costs  during production and sustainment.
section_title: Multiple Studies and Analyses Show Additional Benefits from Competition
paragraphs: Competition for the JSF engines may also provide benefits that do not  result in immediate financial savings, but could result in reduced costs or  other positive outcomes over time. Our prior work, along with studies by  DOD and others, indicate there are a number of non financial benefits that  may result from competition, including better performance, increased  reliability, and improved contractor responsiveness. In addition, the long  term impacts of the JSF engine program on the global industrial base go  far beyond the two competing contractors.
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 4  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 an earlier  recommendation to continue the alternate engine program. These studies  concluded that the program would    maintain the industrial base for fighter engine technology,    enhance readiness,   instill contractor incentives for better performance,    ensure an operational alternative if the current engine developed         enhance international participation.
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. This point is underscored by recent failures  of the Pratt & Whitney test program. In August 2007, an engine running at a  test facility experienced failures in the low pressure turbine blade and  bearing, which resulted in a suspension of all engine test activity. In  February 2008, during follow-on testing to prove the root cost of these  failures, a blade failure occurred in another engine, resulting in delays to  both the Air Force and Marine Corps variant flight test programs.
The JSF program continues to work toward identifying and correcting  these problems. Though current performance data indicate it is unlikely  that these or other engine problems would lead to fleetwide 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.
section_title: Concluding Observations
paragraphs: DOD is challenged once again with weighing short-term needs against  potential long-term payoffs within the JSF program, especially in terms of  the test program and the approach for developing, procuring, and  sustaining the engine. We and others believe that the JSF risk reduction  plan is too risky—cutting test resources and flight tests will constrain the  pace and fidelity of development testing—and additional costs and time  will likely be needed to complete JSF development. Finding and fixing  deficiencies during operational testing and after production has ramped up  is costly, disruptive, and delays getting new capabilities to the warfighter.  Further, without directly addressing the root causes of manufacturing  delays and cost increases, the problems will persist and continue to drain  development resources and impact low-rate production that is just  beginning. These actions may postpone events, but a major restructuring  appears likely—we expect DOD will need more money and time to  complete development and operational testing, which will delay the full- rate production decision.
Because the JSF is entering its most challenging phase—finalizing three  designs, maturing manufacturing processes, conducting flight tests, and  ramping up production in an affordable manner—decision making and  oversight by Congress, top military leaders, and our allies is critical for  successful outcomes. The size of the JSF acquisition, its impact on our  tactical air forces and those of our allies, and the unreliability of the  current estimate, argue for an immediate new and independent cost  estimate and uncertainty analysis, so that these leaders can have good  information for effective decision making. Likewise, the way forward for  the JSF engine acquisition strategy entails one of many critical choices  facing DOD today, and underscores the importance of decisions facing the  program. Such choices made today on the JSF program will have long  term impacts.
Mr. Chairmen, this concludes my prepared statement. I will be happy to  answer any questions you or other members of the subcommittee may  have.
section_title: Contacts and Acknowledgments
paragraphs: For future questions regarding this testimony, please contact Michael J.  Sullivan, (202) 512-4841. Individuals making key contributions to this  testimony include Marvin Bonner, Jerry Clark, Bruce Fairbairn, J.  Kristopher Keener, Matt Lea, Brian Mullins, Daniel Novillo, and Charles  Perdue.
section_title: Appendix I: Scope and Methodology
paragraphs: To conduct our mandated work on the JSF acquisition program, we  tracked and compared current cost and schedule estimates with prior  years, identified major changes, and determined causes. We visited the  prime contractor’s plant to view manufacturing processes and plans for  low rate production. We obtained earned value data, contractor workload  statistics, performance indicators, and manufacturing results.  We  reviewed the Mid Course Risk Reduction Plan and supporting documents,  discussed pros and cons with DOD officials, and evaluated potential  impacts on flight plans and test verification criteria.
We reviewed the cost estimating methodologies, data, and assumptions  used by the JSF joint program office to project development, procurement,  and sustainment costs. We assessed the program office’s procedures and  methodologies against GAO’s Cost Assessment Guide and best practices  employed by federal and private organizations. We obtained cost estimates  prepared by the Cost Analysis Improvement Group, Naval Air Systems  Command, and Defense Contract Management Command and discussed  with the cost  analysts the methodologies and assumptions used by those  organizations. We discussed plans, future challenges, and results to date  with DOD and contractor officials.
For our work on the alternate engine we used the methodology detailed  below, the same as had been used in support of our statement in March  2007. For this statement, we collected similar current information so the  cost information could be updated. 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 730 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:    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 2008 to be sunk costs and did not  factor them into analysis.
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.
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:   We used current JSF program office estimates of remaining  development costs for both contractors and considered all costs for  development through fiscal year 2008 to be sunk costs.
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.
We used the same methodology and assumptions to perform the  calculation for sustainment costs in a competition as in the   sole-source scenario.
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.
Our analysis of the industrial base does not independently verify the  relative health of either contractors’ suppliers or workload.
section_title: Related GAO Products
paragraphs: Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks,  GAO-08-388. Washington, D.C.: Mar. 11, 2008.
Tactical Aircraft: DOD Needs a Joint and Integrated Investment  Strategy, GAO-07-415. Washington, D.C.: Apr. 2, 2007.
Defense Acquisitions: Analysis of Costs for the Joint Strike Fighter  Engine Program, GAO-07-656T. Washington, D.C.: Mar. 22, 2007.
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.
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