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 engines, mean the future financial investment will be significant. DOD is expected to develop, procure, and maintain 2,443 aircraft at a cost of more than $338 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 potential international sales (expected to be between 2,000 and 3,500 additional aircraft) and the current U.S. aircraft that the JSF will either replace or complement to meet mission requirements. Congress first expressed concern over the lack of engine competition in the JSF program in fiscal year 1996 and in fiscal year 1998 directed DOD to ensure that sufficient funding was committed to develop an alternate engine. Since that time, DOD has initiated multiple studies to determine the advantages and disadvantages of the alternate engine program. DOD program management advisory groups conducted studies in 1998 and again in 2002, both resulting in recommendations to continue with the alternate engine program. The advisory groups determined that developing an alternate JSF engine had significant benefits in the areas of contractor responsiveness, industrial base, aircraft readiness, and international participation. They also reported finding marginal benefits in the areas of cost savings and the ability to add future engine improvements. However, they found no benefit with regard to reducing development risk without restructuring the program. The advisory groups noted that these recommendations were made independent of the services’ ability to fund the program—meaning overall affordability should be taken into consideration. In August 2005, DOD awarded a $2.1 billion contract for alternate engine system development and demonstration, of which $699 million has been appropriated to date. In its fiscal year 2007 budget submission, DOD proposed canceling the alternate engine program and eliminated funding related to this effort. While Congress restored the majority of the funding for that year, DOD again eliminated alternate engine funding in its proposed budget for fiscal year 2008. DOD decided to cancel the alternate engine program prior to the fiscal year budget submission, stating that (1) no net 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 reported last year that this decision was made without a new and comprehensive analysis and focused only on the potential up-front savings in engine procurement costs. We stated further that costs already sunk were inappropriately included and long-term savings that might accrue from competition for providing support for maintenance and operations over the life cycle of the engine were excluded from the decision justification. Our position was that DOD’s decision to cancel the program was driven by the need to identify sources of funding in order to pay for other, more immediate priorities within the department. DOD did not change the JSF acquisition strategy to reflect its proposed elimination of the alternate engine program, and it continues a dual engine approach. The 2007 Defense Authorization Act has now placed certain restrictions on DOD modification of the dual engine approach. According to current JSF program plans, beginning in fiscal year 2007, the program office will award the first of three annual production contracts to Pratt & Whitney for its F135 engine. In fiscal years 2010 and 2011, noncompetitive contracts will be awarded to both Pratt & Whitney and to the Fighter Engine Team for the F136 engine. Beginning in fiscal year 2012, contracts will be awarded 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. Traditionally, operating and support costs have accounted for 72 percent of a program’s life cycle costs. Without competition, the JSF program office estimates that it will spend $53.4 billion over the remainder of the F135 engine program. This includes cost estimates for the completion of system development, procurement of 2,443 engines, production support, and sustainment. Additional investment of between $3.6 billion and $4.5 billion may be required should the Department decide to continue competition in the JSF engine program. This includes additional development, procurement, support, and stand-up costs for a second engine provider. While Pratt & Whitney design responsibilities and associated costs may be reduced under a sole-source contract, our analysis shows that competitive pressures may yield enough financial savings to offset the costs of competition over the life of the program. These results are dependent on how the government decides to run the competition, the number of aircraft that are ultimately purchased, and the exact 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 10.3 to 12.3 percent savings. According to actual Air Force data from past engine programs, including for the F-16 aircraft, it is reasonable to expect savings of at least that much. Additionally, there are a number of non financial benefits that may result from competition, including better performance, increased reliability, and improved contractor responsiveness. The cost of the Pratt & Whitney F135 engine is estimated to be $53.4 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 1 shows the costs remaining to develop, procure, and support the Pratt & Whitney F135 engine on a sole-source basis. Costs remaining for the JSF engine program can be broken down into four categories: remaining system development and demonstration contract costs; engine unit recurring flyaway costs—per unit cost for aircraft, based on rate of learning; production support costs related to production spares, training personnel and equipment, manpower, and depot facilities; and sustainment costs to maintain fielded aircraft based on engine flight hour costs and usage rates. Stable requirements and funding, a well-defined acquisition strategy, an appropriately structured contract, and adequate oversight are keys to ensuring the contractor is motivated to perform, especially under a sole- source contract where competitive pressure does not exist. In a sole- source environment, the primary benefit comes from the improved rate of progress, or “learning,” achieved by the contractor based on having all production activity. In other words, the greater volume of business given to a single contactor is expected to translate into efficiency in production in a shorter time, thereby lowering associated costs. Learning curves must be established in a manner so that the contractor is not only intent on meeting that curve, but also incentivized to exceed the curve in order to achieve cost reductions. Through analysis of program information and in conversations with Pratt & Whitney and JSF program office personnel, we found examples of initiatives aimed at improving the F135 learning curve. Pratt & Whitney has ongoing and planned activities in areas such as supply chain optimization, technology development, and manufacturing efficiency that it hopes will reduce unit costs through the first 5 years of F135 production. Having Pratt & Whitney as the single engine manufacturer may also provide benefits in terms of simpler design and integration responsibilities. Currently, in addition to development of the F135 engine design, Pratt & Whitney has responsibility for design and development of common components that will go on all JSF aircraft, regardless of which contractor provides the engine core. Examples of common components include the lift fan and roll posts for the Marine Corps variant, the exhaust nozzles, and ducts. This responsibility supports the overall F-35 program 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 F136. In testimony last year, the Under Secretary of Defense for Acquisition, Technology, and Logistics reported that DOD preferred a sole-source engine strategy for the JSF program. He noted that maintaining two engine suppliers for the program would cost, at that time, an additional $1.8 billion for the development phase which was not the most efficient use of Department resources. In fact, when considering the costs of competition over the full life cycle of the F136 program, the additional costs are even greater. 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. We 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 a 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 $4.5 billion under the first scenario and $3.6 billion under the second scenario. Table 2 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 volumes that is accounted for in the projected unit recurring flyaway costs used to construct each estimate.