Over the past year, DOD has substantially restructured the JSF program, taking positive actions that should lead to more achievable and predictable outcomes. Restructuring has consequences--higher development costs, fewer aircraft in the near term, training delays, and extended times for testing and delivering capabilities to warfighters. Key restructuring changes include the following: The total system development cost estimate rose to $56.4 billion and its schedule was extended to 2018. This represents a 26 percent increase in cost and a 5-year slip in schedule compared to the current approved program baseline established in 2007. Resources and time were added to development testing. Testing plans were made more robust by adding another development test aircraft and the use of several production aircraft; increasing the number of test flights by one-third; extending development testing to 2016; and reducing its overlap with initial operational testing. Near-term procurement quantities were reduced by 246 aircraft through 2016; the annual rate of increase in production was lowered; and the full-rate production decision moved to 2018, a 5-year slip from the current baseline. The military services were directed to reexamine their initial operational capability (IOC) requirements, the critical need dates when the warfighter must have in place the first increment of operational forces available for combat. We expect the Marine Corps' IOC will slip significantly from its current 2012 date and that the Air Force's and Navy's IOC dates will also slip from the current dates in 2016. To address technical problems and test deficiencies for the short takeoff and landing (STOVL) variant, the Department significantly scaled back its procurement quantities and directed a 2-year period for evaluating and engineering technical solutions to inform future decisions on this variant. DOD also "decoupled" STOVL testing from the other two variants so as not to delay them and to allow all three to proceed at their own speeds. The fiscal year 2012 Defense Budget reflects the financial effects from restructuring actions through fiscal year 2016. The net effect was increased development funding and decreased procurement funding in the near term. For example, compared to last year's estimate for the same year, DOD for fiscal year 2012 requested an increase of $520 million for JSF development and a decrease of $2.6 billion for procurement, reflecting the reduction of 13 aircraft and associated spares. Table 1 summarizes the revised procurement funding requirements and annual quantities during this 5-year period following the Secretary's reductions. Even after decreasing annual quantities and lowering the production rate of increase, JSF procurement still escalates significantly. Annual procurement funding levels more than double and quantities more than triple during this period. These numbers do not include the additional orders expected from the international partners. DOD does not yet know the full impact from restructuring actions on future procurement funding requirements beyond this 5-year period. Cost analysts are still calculating the net effects from deferring the near-term procurement of 246 aircraft to future years and from lowering the annual rate of increased procurement. After a Nunn-McCurdy breach of the critical cost growth threshold and DOD certification, the most recent milestone must be rescinded, the program restructured to address the cause of the breach, and a new acquisition program baseline must be approved that reflects the certification approved by the milestone decision authority. The Secretary has not yet granted new milestone B approval for the JSF nor approved a new acquisition program baseline. Future funding requirements could be higher than projected and the quantities, which are considered affordable by the U.S. and allies, could be reduced, further driving up unit costs. Affordability--in terms of the investment costs to acquire the JSF, the continuing costs to operate and maintain it over the life-cycle, and its impact on other defense programs--is a challenging issue. Including the funding added by the restructuring actions, system development cost estimates have increased 64 percent since program start. (App. II summarizes the increases in target prices on development contracts, and major cost drivers contributing to increased system development funding requirements.) Also, the estimated average unit procurement price for the JSF has about doubled since program start and current forecasts indicate that life-cycle costs will be substantially higher than the legacy aircraft it replaces. Rising JSF costs erode buying power and may make it difficult for the U.S. and its allies to buy and sustain as many aircraft as planned. Going forward, the JSF will require unprecedented demands for funding in a period of more austere defense budgets where it will have to annually compete with other defense and nondefense priorities for the discretionary federal dollar. Figure 1 illustrates the substantive annual development and procurement funding requirements--almost $11 billion on average through program completion in 2035. This reflects the program's estimate at the time of the fiscal year 2011 budget submission. These funding levels do not include additional funding increases pursuant to the June 2010 Nunn-McCurdy certification nor funding changes in the fiscal year 2012 budget request. As discussed earlier, defense cost analysts are still computing the long-term procurement funding requirements reflecting the deferral of aircraft to future years. The JSF program established 12 clearly stated goals in testing, contracting, and manufacturing for completion in calendar year 2010. It had mixed success, achieving 6 goals and making varying degrees of progress on the other 6. For example, the program exceeded its goal for the number of development flight tests but did not deliver as many test and production aircraft as planned. Also, the program awarded its first fixed-price contract on its fourth lot of production aircraft, but did not award the fixed-price engine contract in 2010 as planned. Table 2 summarizes JSF goals and accomplishments for 2010. Although still hampered by the late delivery of test aircraft to testing sites, the development flight test program significantly ramped up operations in 2010, accomplishing 3 times as many test flights as the previous 3 years combined. The Air Force conventional takeoff and landing variant significantly exceeded the annual plan while initial limited testing of the Navy's carrier variant was judged satisfactory, below plans for the number and hours of flight but ahead on flight test points flown. The Marine Corps STOVL, however, substantially underperformed in flight tests, experienced significant down times for maintenance, and was challenged by several technical issues unique to this variant that could add to its weight and cost. The STOVL's problems were a major factor in the Secretary's decision to give the STOVL a 2-year period to solve engineer issues, assess impacts, and inform a future decision as to whether and h to proceed with this variant. Table 3 summarizes 2010 flight test results fo each variant. After completing 9 years of system development and 4 years of overlapping production activities, the JSF program has been slow to gain adequate knowledge to ensure its design is stable and the manufacturing process ready for greater levels of annual production. The JSF program still lags in achieving critical indicators of success expected from well- performing acquisition programs. Specifically, the program has not yet stabilized aircraft designs--engineering changes continue at higher than expected rates long after critical design reviews and well into procurement, and more changes are expected as testing accelerates. Also, manufacturing cost increases and delays in delivering test and production aircraft indicate need for substantial improvements in factory throughput and performance of the global supply chain. Engineering drawings released since design review and the number and rate of design changes exceed those planned at program outset and are not in line with best practices. Critical design reviews were completed on the three aircraft variants in 2006 and 2007 and the designs declared mature, but the program continues to experience numerous changes. Since 2007, the program has produced 20,000 additional engineering drawings, a 50-percent increase in total drawings and about five times more than best practices suggest. In addition, changes to drawings have not yet decreased and leveled off as planned. Figure 2 tracks and compares monthly design changes and future forecasts against contractor plans in 2007. The monthly rate in 2009 and 2010 was higher than expected and the program now anticipates more changes over a longer period of time-- about 10,000 more changes through January 2016. With most of development testing still ahead for the JSF, the risk and impact from required design changes are significant. In addition, emerging concerns about the STOVL lift fan and drive shaft, fatigue cracks in a ground test article, and stealth-related issues may drive additional and substantive design changes. As in prior years, lingering management inefficiencies, including substantial out-of-station work and part shortages, continued to increase the labor needed to manufacture test aircraft. Although there have been improvements in these factors, final acceptance and delivery of test jets were still delayed. Total labor hours required to produce the test aircraft increased over time. The cumulative actual labor hours through 2010 to complete the 12 test aircraft exceeded the budgeted hours estimated in 2007 by more than 1.5 million hours, a 75 percent increase. Figure 3 depicts forecasted and actual labor hours for building test jets. DOD began procuring production jets in 2007 and has now ordered 58 aircraft on the first four low-rate initial production lots. The JSF program anticipated the delivery of 14 production aircraft through 2010, but none have been delivered. Delivery of the first two production jets has been delayed several times since the contract was signed and is now expected in April 2011. The prices on the first three cost-reimbursable production contracts have increased from amounts negotiated at contract award an the completion dates for delivering aircraft have been extended over 9 months on average. We are encouraged by DOD's award of a fixed-price incentive fee contract for lot 4 production and the prospects for the cos t study to inform lot 5 negotiations, but we have not examined cont specifications. Accumulating a large backlog of jets on order but undelivered is not an efficient use of federal funds, tying up millions of dollars in produce. obligations ahead of the ability of the manufacturing process to The aircraft and engine manufacturers now have significantly more ite in production flow compared to prior years and are making efforts to implement restructuring actions and recommendations from expert defense teams assembled to evaluate and improve production and su operations. Eight of 20 key recommendations from the independent manufacturing review team have been implemented as of Septemb Until improvements are fully implemented and demonstrated, the restructuring actions to reduce near term procurement quantities and establish a more achievable ramp rate are appropriate and will provide more time to fully mature manufacturing and supply processes and catch up with aircraft backlogs. Improving factory throughput and controlling costs--driving down labor and material costs and delivering on time-- are o the warfighter essential for efficient manufacturing and timely delivery t at the increased production rates planned for the future. er 2010. Since the first flight in December 2006, only about 4 percent of JSF capabilities have been completely verified by flight tests, lab results, both. The pace of flight testing accelerated significantly in 2010, but overall progress is still much below plans forecast several years ago. Furthermore, only a small portion of the extensive network of ground te labs and simulation models are fully accredited to ensure the fidelity of results. Software development--essential for achieving about 80 percent is significantly behind schedule as it enters its of the JSF functionality-- most challenging phase. Development flight testing was much more active in 2010 than prior ye and had some notable successes, but cumulatively still lagged behind previous expectations. The continuing effects from late delivery of test aircraft and an inability to achieve the planned flying rates per aircraft ars substantially reduced the amount and pace of testing planned previously. Consequently, even though the flight test program accelerated its pace la year, the total number of flights accomplished during the first 4 years ofthe test program significantly lagged expectations when the program's 2007 baseline was established. Figure 4 shows that the cumulative numbe of flights accomplished by the end of 2010 was only number forecast by this time in the 2007 test plan. By the end of 2010, about 10 percent of more than 50,000 planned flight test points had been completed. The majority of the points were earned on airworthiness tests (basic airframe handling characteristics) and in ferrying the planes to test sites. Remaining test points include more complex and stringent requirements, such as mission systems, ship suitability, and weapons integration that have yet to be demonstrated. The JSF test program relies much more heavily than previous weapon systems on its modeling and simulation labs to test and verify aircraft design and subsystem performance. However, only 3 of 32 labs and models have been fully accredited to date. The program had planned to accred it 11 labs and models by now. Accreditation is essential to validate that the models accurately reflect aircraft performance and it largely depends upo flight test data to ground testing for some flight testing is unproven. Contracting officials told us that early results are providing good correlation between ground and flight tests. verify lab results. Moreover, the ability to substitute Software providing essential JSF capability is not mature and releases the test program are behind schedule. Officials underestimated the time and effort needed to develop and integrate the software, substantially nd contributing to the program's overall cost and schedule problems a testing delays, and requiring the retention of engineers for longer periods Significant learning and development work remains before the program can demonstrate the mature software capabilities needed to meet warfighter requirements. The JSF software development effort is one of the largest and most complex in DOD history, providing functionality essential to capabilities such as sensor fusion, weapons and fire control, maintenance diagnostics, and propulsion. JSF depends on millions more lines of software code than the F-22A Raptor and F/A-18E/F Super Hornet lines While good progress has been reported on the writing of code, total . . of code have grown by 40 percent since preliminary design review and 13 cal design review. The amount of code needed will percent since the criti likely increase as integration and testing efforts intensify. A second software integration line added as part of the restructuring will impr capacity and output. Delays in developing, integrating, and releasing software to the te program have cascading effects hampering flight tests, training, and lab accreditation. While progress is being made, a substantial amount of software work remains before the program can demonstrate full warfighting capability. The program released its second block, or increment, to flight test nearly 2 years later than the plan set in 2006, largely due to integration problems. Each of the remaining three blocks-- providing full mission systems and warfighting capabilities--are now projected to slip more than 3 years compared to the 2006 plan. Figure 5 st ates the actual and projected slips for each of the 5 software blocks g software to the test program. The JSF program is at a critical juncture--9 years in development and 4 years in limited production-but still early in flight testing to verify aircraft design and performance. If effectively implemented and sustaine the restructuring DOD is conducting should place the JSF program on a firmer footing and lead to more achievable and predictable outcomes. However, restructuring comes with a price--higher development costs, fewer aircraft received in the near term, training delays, prolonged times for testing and delivering the capabilities required by the warfighter, and impacts on other defense programs and priorities. Reducing near-term d, procurement quantities lessens, but does not eliminate the still substant and risky concurrency of development and production. Development testing activities will now overlap 11 years of procurement. Flight testing and production activities are increasing and contractors are improving supply and manufacturing processes, but deliveries are still lagging. Slowed deliveries have led to a growing backlog of jets on order but not delivered. This is not a good use of federal funds, obligating millions of dollars well before the manufacturing process can deliver aircraft. We agree with defense leadership that a renewed and sustained focus on affordability by contractors and the government is critical to mo ving this important program forward and enabling our military services and our allies to acquire and sustain JSF forces in needed quantities. Maintainin senior leadership's increased focus on program results, holding government and contractors accountable for improving performance bringing a more responsible management approach to the JSF to "live within its means" may help limit future cost growth and the consequence for other programs in the portfolio. The JSF acquisition demands an unprecedented share of the Department's future investment funding. The program's size and priority are such that its cost overruns and extended schedules must either be borne by funding cuts to other programs or else drive increases in the top line of defense spending; the latter may not be n a period of more austere budgets. Given the other priorities that option i DOD must address in a finite budget, JSF affordability is critical and DOD m future. ust plan ahead to address and manage JSF challenges and risks in the Chairman Bartlett, Ranking Member Reyes, and members of the Tactical Air and Land Forces Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have. 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 Bruce Fairbairn, Charlie Shivers, Julie Hadley, W. Kendal Roberts, LeAnna Parkey, and Matt Lea. development start) December 2003 (2004 replan) baseline) April 2010 (initial program restructure) June 2010 (Nunn-McCurdy) Cost estimates (then-year dollars in billions) Unit cost estimates (then-year dollars in millions) Projected costs for three contracts comprise about 80 percent of total system development funding requirements. The airframe and primary engine development contracts have experienced significant price increases since contract awards--79 percent and 69 percent respectively. The alternate, or second, engine contract price has increased about 12 percent. By design, it began about 4 years after the primary engine contract and has a more limited scope. The primary engine contract includes development of both the common engine and the STOVL lift system while the alternate engine contract develops its version of the conventional common engine. Figures 6, 7, and 8 depict the price histories for these three contracts and the reasons behind major price increases. Table 4 shows changes in engine development schedules. The initial service release milestone usually coincides with low rate initial production. The engine should have completed required verification activities and meet specification requirements. The operational capability release milestone is generally associated with the start of full-rate production when the engine is acceptable for full production release. Tactical Aircraft: Air Force Fighter Force Structure Reports Generally Addressed Congressional Mandates, but Reflected Dated Plans and Guidance, and Limited Analyses. GAO-11-323R. Washington, D.C.: February 24, 2011. Defense Management: DOD Needs to Monitor and Assess Corrective Actions Resulting from Its Corrosion Study of the F-35 Joint Strike Fighter. GAO-11-171R. Washington D.C.: December 16, 2010. Joint Strike Fighter: Assessment of DOD's Funding Projection for the F136 Alternate Engine. GAO-10-1020R. Washington, D.C.: September 15, 2010. Tactical Aircraft: DOD's Ability to Meet Future Requirements is Uncertain, with Key Analyses Needed to Inform Upcoming Investment Decisions. GAO-10-789. Washington, D.C.: July 29, 2010. Joint Strike Fighter: Significant Challenges and Decisions Ahead. GAO-10-478T. Washington, D.C.: March 24, 2010. Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting Warfighter Requirements on Time. GAO-10-382. Washington, D.C.: March 19, 2010. Joint Strike Fighter: Significant Challenges Remain as DOD Restructures Program. GAO-10-520T. Washington, D.C.: March 11, 2010. Joint Strike Fighter: Strong Risk Management Essential as Program Enters Most Challenging Phase. GAO-09-711T. Washington, D.C.: May 20, 2009. Joint Strike Fighter: Accelerating Procurement before Completing Development Increases the Government's Financial Risk. GAO-09-303. Washington D.C.: March 12, 2009. Joint Strike Fighter: Impact of Recent Decisions on Program Risks. GAO-08-569T. Washington, D.C.: March 11, 2008. Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks. GAO-08-388. Washington, D.C.: March 11, 2008. Tactical Aircraft: DOD Needs a Joint and Integrated Investment Strategy. GAO-07-415. Washington, D.C.: April 2, 2007. Joint Strike Fighter: Progress Made and Challenges Remain. GAO-07-360. Washington, D.C.: March 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. Defense Acquisitions: Major Weapon Systems Continue to Experience Cost and Schedule Problems under DOD's Revised Policy. GAO-06-368. Washington, D.C.: April 13, 2006. Defense Acquisitions: Actions Needed to Get Better Results on Weapons Systems Investments. GAO-06-585T. Washington, D.C.: April 5, 2006. Tactical Aircraft: Recapitalization Goals Are Not Supported by Knowledge-Based F-22A and JSF Business Cases. GAO-06-487T. Washington, D.C.: March 16, 2006. Joint Strike Fighter: DOD Plans to Enter Production before Testing Demonstrates Acceptable Performance. GAO-06-356. Washington, D.C.: March 15, 2006. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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:
The F-35 Lightning II, also known as the Joint Strike Fighter (JSF), is the Department of Defense's (DOD) most costly and ambitious aircraft acquisition, seeking to simultaneously develop and field three aircraft variants for the Air Force, Navy, Marine Corps, and eight international partners. The JSF is critical for recapitalizing tactical air forces and will require a long-term commitment to very large annual funding outlays. The estimated total investment cost is currently about $385 billion to develop and procure 2,457 aircraft. Because of a history of relatively poor cost and schedule outcomes, defense leadership over the past year has directed a comprehensive restructuring of the JSF program that is continuing. This testimony draws substantially from our extensive body of work on the JSF, including the current annual review mandated in the National Defense Authorization Act for Fiscal Year 2010, Pub. L. No. 111-84 244 (2009). Our draft report is being reviewed by the Department and we expect to issue it early next month. That report and this testimony discusses (1) program cost and schedule changes and their implications on affordability; (2) progress made during 2010; (3) design and manufacturing maturity; and (4) test plans and progress. GAO's work included analyses of a wide range of program documents and interviews with defense and contractor officials. DOD continues to restructure the JSF program, taking positive, substantial actions that should lead to more achievable and predictable outcomes. Restructuring has consequences--higher up-front development costs, fewer aircraft bought in the near term, training delays, and extended times for testing and delivering capabilities to warfighters. Total development funding is now estimated at $56.4 billion to complete in 2018, a 26 percent cost increase and a 5-year schedule slip from the current baseline. DOD also reduced procurement quantities by 246 aircraft through 2016, but has not calculated the net effects of restructuring on total procurement costs nor approved a new baseline. Affordability for the U.S. and partners is challenged by a near doubling in average unit prices since program start and higher estimated life-cycle costs. Going forward, the JSF requires unprecedented funding levels in a period of more austere defense budgets. The program had mixed success in 2010, achieving 6 of 12 major goals and progressing in varying degrees on the rest. Successes included the first flight of the carrier variant, award of a fixed-price aircraft procurement contract, and an accelerated pace in development flight tests that accomplished three times as many flights in 2010 as the previous 3 years combined. However, the program did not deliver as many aircraft to test and training sites as planned and made only a partial release of software capabilities. The short takeoff and landing (STOVL) variant had significant technical problems and deficient flight test performance. DOD directed a 2-year period to evaluate and engineer STOVL solutions. After more than 9 years in development and 4 in production, the JSF program has not fully demonstrated that the aircraft design is stable, manufacturing processes are mature, and the system is reliable. Engineering drawings are still being released to the manufacturing floor and design changes continue at higher rates than desired. More changes are expected as testing accelerates. Test and production aircraft cost more and are taking longer to deliver than expected. Manufacturers are improving operations and implemented 8 of 20 recommendations from an expert panel, but have not yet demonstrated a capacity to efficiently produce at higher production rates. Substantial improvements in factory throughput and the global supply chain are needed. Development testing is still early in demonstrating that aircraft will work as intended and meet warfighter requirements. About 4 percent of JSF capabilities have been completely verified by flight tests, lab results, or both. Only 3 of the extensive network of 32 ground test labs and simulation models are fully accredited to ensure the fidelity of results. Software development--essential for achieving about 80 percent of the JSF functionality--is significantly behind schedule as it enters its most challenging phase.