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Last Updated: Mon Jan 27 11:18:09 UTC 2014








F-35 JSF Program: When is “Affordability” Not?
  
Air Power Australia - Australia's Independent Defence Think Tank

Air Power Australia NOTAM

   9th July, 2010

Peter Goon, BEng (Mech), FTE (USNTPS),
Head of Test and Evaluation, Air Power Australia

Contacts: Peter Goon
Carlo Kopp

Mob: 0419-806-476 Mob: 0437-478-224



“Affordability is the balance of cost and capabilities required to accomplish assigned missions. For over a decade the Marine Corps has avoided the cost of new procurement during a time when the service life of our legacy aircraft were sufficient to meet the missions assigned. However, in the near future, our investment in the capabilities of the F-35B will outweigh the unavoidable legacy aircraft operations and sustainment (O&S) cost increases we will incur with the F/A-18, AV-8B, and EA-6B.”

Introduction to “The Projected Impact of F-35B on USMC Operational Costs”
By Lieutenant General George J. Trautman, III, Deputy Commandant for USMC Aviation1.

In 2002, the JSF started life as a “
200 Billion dollar program . . . to develop and field an affordable, highly common family of next-generation strike aircraft for the United States Navy, Air Force, Marine Corps and allies”. For those not familiar with the term, a “strike aircraft” is basically a bomber, euphemistically referred to as a “bomb truck”.

In all, some 2,852 JSF aircraft were planned to be produced for the US Forces, with “Program emphasis is on affordability – reducing the development cost, production cost and cost of ownership of the JSF family of aircraft”.

The JSF aircraft capabilities were to be fielded and start operations in 2008.

Touted as the world’s largest defence procurement program of all time and with such fanfare, Air Force Generals and politicians, alike, were encouraged to commit to the program and flocked to “get with the strength”, declaring how they were very confident and extremely comfortable in their belief in the promise that “Affordability is the cornerstone of the JSF Program”.

Now, some 8 years later, the JSF Program is seven years behind schedule and counting while, at 382.4 Billion Dollars for 409 fewer aircraft, the program’s budgetary estimate has effectively almost than doubled, that is increased by over 97% to be more precise.

Development costs, the ubiquitous RDT&E costs, for the System Development /  Demonstration (SDD/EMD) Phase have gone from a budgeted target of 34.4 Billion Dollars at the start of 2002 to 44.8 Billion by the end of 2003 to the then current estimate of over 50 Billion by the end of 2009. The over 30% increase experienced from 2002 to 2003 should have triggered what is known as an Approved Baseline Program (APB) breach, but no such breaches have been reported to the US Congress, even when the overall increases had reached over 45 % by the end of 2009.

Since then, sources inside the Pentagon have now revealed that, following the independent costing study completed in May 2010 which showed the JSF Program had incurred a Nunn-McCurdy unit cost breach of over 90% and not the 57% that reports from the Office of the Secretary of Defense (OSD) were encouraging people to infer, the RDT&E budget estimates have had to be increased further - by about another 7.2 Billion Dollars over and above the end of 2009 Budgetary Estimate (50.1681 Billion Dollars) that was used in the President’s 2011 Budget Proposal – PB2011.

However, these sources also say the new budget estimates for the SDD Phase of the JSF Program would have been a lot higher save for some “highly optimistic” management and accounting practices. These have resulted, inter alia, in more development activities and their associated costs being pushed beyond the current SDD Phase. This is in line with the recently coined spin in the December 2009 JSF Selected Acquisition Report (SAR) that the JSF Program is now “focused on developing, and delivering to the warfighter incremental blocks of increasing capability”.

With all the claims still being made about of how the lessons learned from the F-22 Raptor Program would be used to make development of the JSF more affordable, the SDD/EMD budget for the F-22 Program of Record was around 30.7 Billion – some 88.9% of the original JSF SDD Budget of 2002, 68.6% of this budget at the end of 2003, and ~60.9% of the then current estimate at the end of 2009, while just over half (~53%) of the latest estimate.
 
In the meantime, the cost estimate for the much vaunted, affordable, low costs for the all important on-going operation and support (O&S) of the aircraft (here read “cost of ownership of the JSF family of aircraft”) has ballooned into what looks like a galactic telephone number – almost a Trillion Dollars, and rising, over the life of a fleet with 409 fewer aircraft. This is 2.75 times the cost estimated in the Approved Program Budget (APB) of 2002, when the 409 aircraft were included.

If you believe the contractor’s recent advice and others, like the Lexington Institute, that the price for the JSF will be 60 Million Dollars apiece, then the budgetary estimate for the life cycle costs works out to be between 6 to 7 times the price of the aircraft, when the norm determined from legacy aircraft programs for an 8,000 flying hour/25 year service life is around twice the purchase price.

Admittedly, this is a budgetary estimate that has taken 8 years to develop and not one that appears to have been published, if at all considered, by the recent independent cost review brought about by the Nunn-McCurdy Breach. However, the form guide on the JSF Program of Record makes further increases an almost certain winning bet.

There is the question of the purchase price itself which, until recently, was always answered with a cost; namely, the “unit recurring flyaway cost” or URF Cost. This would be expressed more than not in historical dollar values, like in 2002 dollars, and as an average URF Cost across the full production of 2,443 units – a reduced price figure now not expected to be attained till sometime after 2023. No doubt, the number in 2002 Dollars is smaller, by some degree, than the actual number of dollars that would be required to be paid at the time of purchase, even more so and by a far more significant degree when purchasing early production aircraft. Australia is pencilled in to start purchasing early versions of the F-35A JSF Conventional Take Off & Land (CTOL) aircraft somewhere between 2012 and 2014, out of the Low Rate Initial Production (LRIP). These aircraft will require significant and costly upgrading to reach the capabilities promised back in 2002 as well as correct any deficiencies found during both developmental and operational testing.
 
According to various defence acquisition guides, handbooks and experts in the field, the URF Cost is only part of the overall purchase price, and, in the case of the JSF, a relatively smaller part than that of legacy aircraft programs. But, the Air Force Generals and senior procurement bureaucrats have persisted in answering any question about the price of this aircraft by using this figure.

However, since the latter part of last year, this figure has been morphed into the newly coined term “unit recurring flyaway price” or URF Price.



Slide 1.2

If you read the disclaimer on the contractor’s Powerpoint slides, it appears that this URF price does not include the cost of the engine and related propulsion components nor some other things, such as Engineering Change Orders or ECOs.

This same chart, though somewhat artistically sanitised, was recently used by Tom Burbage of Lockheed Martin in his presentation to Australia’s Minister for Defence Materiel & Science, the Hon Greg Combet, to show that all is well, at least pricing <sic> wise. The upshot is that these two charts and the data contained therein are fundamentally the same, as are the trends of the curves themselves which have just been moved upwards by a fixed amount across the periods of the schedule as shown.

However, the intents and purposes of the later chart would appear to the educated observer to contain the additional elements of subterfuge and confabulation, likely for the consumption of senior officials in the Australian Department of Defence and the Defence Material Organisation (DMO) as well as their Minister, though hardly for their benefit, or for the benefit of their fellow Australians.



Slide 2.2

A similar though apparently earlier slide entitled “URF Cost Status” from a presentation put together by the Danish Ministry for Defence and dated the 29th of January, 2010, puts some more flesh on the bones in relation to the F-35A JSF (CTOL) unit recurring flyaway cost, now being called the URF Price; this time with some actual dollar figures populating the vertical axis of the graph.  This chart may go some way to explain why Lockheed Martin representatives and others, like the Lexington Institute, are saying the price for the F-35A JSF is going to be around US$60 Million Dollars, in Then-Year Dollars or TY$s.



Slide 2.2 This would appear to exclude propulsion, listed as Government Furnished Equipment.

For the JSF Program, ECOs are going to be very important . . . and very costly – even more so given the level of the aforementioned advisory about “highly optimistic” management and accounting practices being the order of the day.

The JSF program has much of the design, development, testing and production being done in parallel; also known as “concurrently”. Low Rate Initial Production (LRIP) aircraft are being built before designs are complete and before these designs have been fully verified, validated and demonstrated/tested. This high level of “concurrency” is what the US Government’s Audit Office (the GAO) and others have been warning about for years; in fact, since the program’s inception.

The extreme levels of risk associated with this inordinately high level of “concurrency” are what will drive up the costs of such things as ECOs or Engineering Change Orders. These are the design changes that result from things like the waivers and concessions required on the production line through to problems found during testing which require redesign. The JSF Program is almost certain to have the highest level of ECOs ever seen in any military aircraft production program, by far, and they will be ongoing for over a decade, well beyond the current development phase.

Now, this has just been a quick overview of the JSF affordability issue and, as always, the devil is in the detail of which there is much; both detail and devilishness. But, suffice to say, if there are those who still believe in the claim that “Affordability is the cornerstone of the JSF Program”, then they are almost certain to also believe in tooth fairies that ride on the backs of pigs that fly.

Given the OSD continues to claim the F-35 Joint Strike fighter is still going to be affordable, the fundamental and unanswered question is:





HOW?







Notes:

1  Please refer: Lieutenant General George J. Trautman, III, Deputy Commandant for USMC Aviation, The Projected Impact of F-35B on USMC Operational Costs, URI: http://www.sldinfo.com/?p=10063.

2  Slides © Lockheed-Martin; reproduced in accordance with 17 U.S.C. §107, this  material is distributed for non-profit research and educational purposes only.



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