FOU, Alm.del - 2009-10 - Bilag 92: The F-35 will cost about what an F-16 costs

With the best of intentions, Congress and the Obama Administration have implemented a seriesof acquisition-reform measures that are making the problem worse. Efforts to clarify the cost ofprograms are sowing confusion. Efforts to reduce risk are raising costs. Efforts to restoreconfidence are undermining political support. In short, acquisition reform is backfiring.A case in point is the F-35 joint strike fighter, a program that will replace the Cold Wartactical aircraft of three U.S. military services and at least nine allies with a stealthy, multi-role fighter. According to the Pentagon's most recent Selected Acquisition Report on theF-35, it is meeting all of its performance goals, passing all of its tests, and "setting newstandards for quality." The program has progressed more smoothly than any other fighterdevelopment program in modern times -- even though it is considerably morecomplicated.But that is not the message Congress and the public are hearing. Instead, they are awash in acontinuous stream of misleading information about rising costs and schedule delays. The high-water mark in this flood was reached last week, when an anonymous defense official told theweb-site InsideDefense.com that each F-35 would end up costing between $133 million and $158million. Those numbers are ridiculous, and the resulting news story omitted several key details:1. The estimates are based on historical data from the F/A-18 and F-22 programs.2. The prices the military actually is being charged for the F-35 are far below such estimates.3. The estimates are based upon assumptions about the future that are unknowable anduntestable.The most basic measure of military-aircraft program cost used by the Pentagon is the"unit recurring flyaway" cost, because it is the foundation on which more inclusivemeasures are based. Unit recurring flyway cost is the amount it will cost to produce eachplane, not counting sunk costs such as R&D and service-life items like spare parts andtraining. Those ancillary items typically are not included in the price-tag for a productionplane, so they have little impact on the behavior of prospective buyers.Based on what the prime contractor has actually charged the government to date for threesuccessive lots of fighters, the unit recurring flyaway cost for the most common version of the F-35 will be about $60 million in today's dollars. That's roughly what the latest variants of the F-16and F/A-18 fighters cost, and less than half what an F-22 costs. The Pentagon estimates the F-35will cost some higher amount, but its estimates have consistently been well above what thecontractor actually charged.In fact, in the current negotiations for the fourth production lot, Lockheed Martin is proposing aprice far below Pentagon estimates, and government negotiators in turn are trying to get a pricebelow what Lockheed Martin is proposing. That implies that the government doesn't take its ownestimates seriously when the time comes to negotiate a price. But then, why should it wheneverybody knows that customers won't be willing to pay astronomical prices for a single-enginefighter? The whole point of the program is to develop a low-cost fighter, so that's what the F-35program will produce -- a fighter that costs about what existing fighters do.-----------------------