JSF development will cost more and take longer to complete than reported to the Congress in April 2008, primarily because of contract cost overruns and extended time needed to complete flight testing. DOD is also significantly increasing annual procurement rates and plans to buy some aircraft sooner than reported last year. The new plan will require increased annual procurement funding over the next 6 years, but officials did not assess its net effect on total program costs through completion of JSF acquisition. Total development costs are projected to increase between $2.4 billion and $7.4 billion and the schedule for completing system development to be extended from 1 to 3 years, according to estimates made in late 2008—one by the JSF Program Office and one by a joint team of Office of the Secretary of Defense (OSD), Air Force, and Navy officials. Cost overruns on both the aircraft and engine contracts, delays in manufacturing test aircraft, and a need for a longer, more robust flight test program were the primary cost drivers. The joint team’s estimate is higher than the program office’s because it included costs for the alternate engine program directed by the Congress and used more conservative assumptions based on current and legacy aircraft experiences. Table 1 compares these two estimates with the official program of record which was reported to the Congress in April 2008. Although annual budgets and procurement quantities for fiscal year 2011 and out are still being reviewed by defense officials and are not available to us, we expect the JSF program to continue its rapid increase in annual procurement quantities and to buy some aircraft sooner than reported to the Congress in April 2008. At that time, DOD planned to ramp up procurement to reach a maximum of 130 aircraft per year by fiscal year 2015 (U.S. quantities only) and sustain this rate for 8 years. Procurement budget requirements for that plan were projected to be over $12 billion per year during peak production. The new fiscal year 2010 procurement budget requests funding of $6.8 billion for 30 JSF aircraft, a unit cost of $227 million. This budget is substantially lower than both the program office’s and the joint team’s estimates for 2010, in terms of unit costs and overall procurement funding. Last month, the Secretary of Defense announced plans to procure 513 JSF aircraft during the 6-year period, fiscal years 2010 through 2015. This total includes procuring 28 more aircraft during this period than previously planned. This plan does not increase the total aircraft to be procured through completion of the JSF program but would buy these 28 aircraft in earlier years than previously scheduled. By accelerating procurement, DOD hopes to recapitalize tactical air forces sooner and mitigate projected future fighter shortfalls. The additional aircraft represent a scaling back of the proposed JSF procurement plans that we reported on in March 2009. The joint team’s estimate included $420 million for the alternate engine program. DOD’s 2010 budget request did not include this funding. At that time, DOD was proposing to accelerate procurement by 169 aircraft during these same years. That proposal would have required from $22 billion to $33 billion more in total procurement funding over that period, according to the respective estimates of the program office and joint estimating team. We have not yet been provided budgets and annual procurement quantities for fiscal years 2011 and out under the Secretary’s revised plan that would establish the increased funding requirements for the new accelerated plan compared to annual procurement funding requirements under the April 2008 program of record. Appendixes 1 and 2 provide an historical track of cost and schedule estimates. DOD and the Congress have had a continuing debate for several years on the merits of an alternate engine program to provide a second source and competition for engine procurement and life cycle support. The alternate engine program was part of the original JSF acquisition strategy. The department first proposed canceling the alternate engine program in the 2007 budget and has not asked for funding in the budgets since then. The administration does not believe an alternate engine is needed as a hedge against the failure of the main engine program and believes savings from competition would be small. The Congress has added funding each year since 2007 to sustain the alternate engine development, including $465 million for fiscal year 2009. To date, the two contractors have spent over $8 billion on engines development—over $6 billion with the main engine contractor and over $2 billion with the second source contractor. 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. As we noted in past testimonies before this committee, the acquisition strategy for the JSF engine must weigh expected costs against potential rewards. In each of the past 2 years we have testified before this committee on the merits of a competitive engine program for the Joint Strike Fighter. While we did not update our analysis we believe it is still relevant and the same conclusions can be drawn. We reported in 2008 that to continue the JSF alternate engine program, an additional investment of about $3.5 billion to $4.5 billion in development and production-related costs, may be required to ensure competition. Our earlier cost analysis suggests that a savings of 9 to 11 percent would recoup that investment. As we reported last year, a competitive strategy has the potential for savings equal to or exceeding that amount across the life cycle of the engine. Prior experience indicates that it is reasonable to assume that competition on the JSF engine program could yield savings of at least that much. As a result, we remain confident that competitive pressures could yield enough savings to offset the costs of competition over the JSF program’s life. However, we recognize that 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. Results from past competitions provide evidence of potential financial and nonfinancial 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 to government concerns about those programs. For example, safety issues with the single-engine F-16 aircraft were seen as having greater consequences than safety issues with the twin-engine F-14 or F-15 aircraft. To address concerns, the Air Force began to fund the development and testing of an alternate engine to be produced by General Electric; the Air Force also supported the advent of an improved derivative of the Pratt & Whitney engine. Beginning in 1983, the Air Force initiated a competition that Air Force documentation suggests resulted in significant cost savings in the program. In the first 4 years of the competition, when actual costs are compared to the program’s baseline estimate, results included (1) nearly 30 percent cumulative savings for acquisition costs, (2) roughly 16 percent cumulative savings for operations and support costs; and (3) 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. Competitive pressure continues today as the F-15 and F-16 aircraft are still being sold internationally. While other defense competitions resulted in some level of benefits, especially with regard to contractor responsiveness, they did not see the same levels of success absent continued competitive pressures. Similar 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 nonfinancial benefits that may result from competition, including better performance, increased reliability, and improved contractor responsiveness. In addition, the long-term effects 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 2 summarizes the benefits determined by those groups. While the benefits highlighted may be more difficult to quantify, they are no less important, and ultimately were strongly considered in recommending continuation of the alternate engine program. These studies concluded that the program would maintain the industrial base for fighter engine technology, enhance readiness, instill contractor incentives for better performance, ensure an operational alternative if the current engine developed problems, and enhance international participation. Another potential benefit of having an alternate engine program, and one also supported by the program advisory groups, 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 cause 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. Manufacturing of JSF development test aircraft is taking more time, money, and effort than planned. Officials believe that they can work through these problems and deliver the 9 remaining test aircraft by early 2010; however, by that time, DOD may have already ordered as many as 58 production aircraft. Manufacturing inefficiencies and parts shortages continue to delay the completion and delivery of development test aircraft needed for flight testing. The contractor has not yet demonstrated mature manufacturing processes, or an ability to produce aircraft consistently at currently planned annual rates.