The F-22 is an air superiority aircraft with a capability to deliver air-to-ground weapons. Advanced technology being developed for the F-22 makes it “. . . a very ambitious, challenging program, probably the most challenging program in recent times,” according to the Department of Defense’s (DOD) Defense Science Board. The most significant features include supercruise, the ability to fly efficiently at supersonic speeds without using fuel-consuming afterburners; low observability to adversary systems that have the objective of locating and shooting the F-22; and integrated avionics to significantly improve the pilot’s battlefield awareness. The F-22 program began the engineering and manufacturing development phase of the acquisition process in 1991. According to the fiscal year 1997 President’s budget, the Air Force planned to develop the F-22 and build nine development aircraft, two nonflying structural test articles, and four preproduction aircraft at a cost of about $17.4 billion. The Air Force planned to buy 76 aircraft during the LRIP phase of the program and 362 aircraft during the full-rate production phase. The total estimated production cost was about $48 billion. The Assistant Secretary of the Air Force for Acquisition engaged a Joint Estimate Team (JET) because management reviews of the F-22 program indicated potential cost growth. In February 1997, the Under Secretary of Defense for Acquisition and Technology approved the Air Force’s proposed plan to restructure the F-22 program based on the results of the JET’s review. JET concluded that the F-22 engineering and manufacturing development program would require additional time and funding to reduce risk before the F-22 enters production. JET estimated that the development cost would increase by about $1.45 billion. Also, JET concluded that F-22 production cost could grow by about $13 billion (from $48 billion to $61 billion) unless offset by various cost avoidance actions, identified as tier I and tier II initiatives. These initiatives are being further defined by a study team chartered by the Assistant Secretary of the Air Force for Acquisition. That team is scheduled to report its conclusions in the fall of 1997. We have not reviewed the basis for the revised savings estimates that are now being devised by the team. We have issued a number of reports concerning the F-22 fighter program. (See Related GAO Products at the end of this report.) In an April 1995 report, we recommended that the Secretary of Defense reduce the degree of concurrency between development and production of the F-22 and minimize commitments to production until after successful completion of operational testing. Cost growth and schedule delays are among the most prevalent, oldest, and most visible problems associated with weapon systems. Our weapon system reviews over a 15-year period indicate that it takes longer and costs more to develop and produce weapons than the estimates on which the programs were initially approved. Program cost increases on the order of 20 to 40 percent have been common on major weapon programs, as have schedule delays of over 2 years. Our review of the Air Force’s restructuring plan for the F-22 program indicates that the projected costs are optimistic. The planned reductions in F-22 production unit costs are greater than achieved on prior fighter programs, and the initiatives to reduce the production costs are not fully developed. JET reported that projected costs for the F-22 grew because (1) making the first three of nine development aircraft was taking substantially more labor than planned, (2) the flight test program did not allow enough time for solving problems likely to be identified in avionics tests, (3) avionics integration was expected to take more time than first thought due to slips in the baseline schedule and loss of experienced software personnel, and (4) the number of engineering changes on the engine was expected to increase over earlier projections. JET also evaluated the cost impact on the production aircraft that could occur because the cost of the first three development aircraft was increasing above projections and the test program needed to be extended. As a result of these changes, production would have to begin later and at a slower pace, and the cost of production aircraft would reflect the increased costs of the development aircraft. JET concluded that cost growth of about $13 billion in the production program (from $48 billion to $61 billion) was possible unless offset by various cost reduction actions identified as tier I and tier II initiatives. JET’s recommendations have been endorsed by the Air Force and essentially approved by the Under Secretary of Defense for Acquisition and Technology. JET’s recommendations are listed in appendix I. JET concluded that savings of $6.6 billion in production costs could be achieved through the tier I initiatives. Although these techniques have the potential to reduce costs, the amount of savings that can be achieved from each will not be known until the initiatives are more specifically defined and production contracts are negotiated for F-22s. The tier I initiatives were those defined by JET in some detail, as shown in table 1. Tier II initiatives were less defined and were expected to provide an additional $6.6 billion in savings. Examples given of additional initiatives include (1) corporate consolidation opportunities; (2) full contractor depot support; and (3) others, including foreign military sales, and efficiencies in dealing with out-of-production parts. Based on prior fighter aircraft programs’ experience, we are skeptical the Air Force can achieve production cost reductions of $13 billion. The planned reductions in F-22 production unit costs are greater than have been experienced by prior fighter programs. Our comparison of the planned reductions in F-22 production unit costs with the historical unit costs of the F-15, F-16, and F-18 programs indicates that the projected reduction in the unit cost of the F-22 exceeds the reductions that have been achieved on these other programs. The Air Force plans to acquire the first full-rate production lot of aircraft (the 71st through the 118th aircraft) at an average unit cost of about 18 percent of the cost of the first lot of LRIP aircraft. Prior programs, such as the F-16, have taken advantage of multiyear procurement and other techniques similar to those proposed for the F-22 program and have achieved significant reductions. However, these reductions were not of the magnitude projected for the F-22. For example, the average unit cost of the first full-rate lot of F-18s was about 31 percent of the cost of the first LRIP lot. Figure 1 compares the projected change in F-22 unit procurement cost to the actual changes in unit procurement cost of the F-15, F-16, and F-18 and plots the average procurement cost for each succeeding production lot of each aircraft. None of the other programs achieved the degree of unit cost reductions projected for the F-22. DOD officials said F-22 unit cost reductions are a result of production cost reduction business plans for the tier I and tier II initiatives. Air Force officials noted that an important factor is that no configuration changes, except for safety-of-flight changes, are to be made during LRIP of the first 70 aircraft. However, by not making configuration changes in the first 70 aircraft, the likelihood for cost growth in the first full-rate production lot may increase when the changes are made. (projected) Average unit cost of first full-rate lot as a percentage of first LRIP lot. JET’s tier I and tier II initiatives primarily consist of techniques that have been used on prior programs. Subsequent to JET’s report, the Assistant Secretary of the Air Force for Acquisition chartered a team to better define JET’s initiatives. The team’s findings are not scheduled to be finalized until the fall of 1997. Considerably more information about the initiatives and their incorporation into a production contract is necessary before it can be determined whether the initiatives will produce the desired outcome. Even though tier I and tier II initiatives have not been fully defined, our prior work, a DOD Cost Analysis Improvement Group (CAIG) report, and recent developments allow us to make observations about the initiatives dealing with multiyear procurement, warranty costs, depot maintenance, subcontract management, and producibility enhancements. In addition, our discussions with Air Force officials confirmed that tradeoffs in F-22 performance were considered but not recommended by JET. JET attributed about $2.9 billion in savings to multiyear procurement, but CAIG estimated $2.4 billion savings based on the recent experience of the C-17 program. Multiyear procurement has been a source of significant savings in the past and could provide savings for the F-22 program. A major portion of the savings from multiyear procurement typically results from the lower prices on economic purchase orders from vendors or subcontractors. The amount of cost reductions that can be achieved by implementing a different warranty clause is unclear. JET concluded that savings of $1 billion could be achieved. However, the contractors’ more recent estimate of the savings available is about $0.7 billion, which seems more realistic. By applying the average cost of warranties we identified in past work, about 0.87 percent of the total contract value, we believe that about $400 million to $500 million in costs could be avoided if the warranty clause were eliminated. Air Force officials explained that they do not intend to eliminate the warranty and have provided about $200 million in the estimate of the cost for a warranty that is more limited, but complies with statutes. Thus, the projected $1 billion in savings is not likely to occur. JET envisioned that, by allowing for full depot maintenance by the contractor, DOD could avoid $2.5 billion in acquisition costs. According to Air Force officials, contractor depot maintenance is no longer being considered a cost reduction initiative. Therefore, the potential for the JET initiatives to achieve $13 billion in cost reductions may be more difficult.