Winslow Wheeler Guest Post: What's the Latest Word on F-35 Unit Cost?

What's the Latest Word on F-35 Unit Cost?

by Winslow T. Wheeler

The 2014 "Omnibus" appropriations act, now signed into law, gives us further insights into the unit cost of the F-35.  The fine print in the "Omnibus," or actually in its "Joint Explanatory Statement," also suggests the possibility of turbulence in the F-35 program beneath the successful, affordable exterior advocates would have us believe.  Other recently available information, including new DOD documents, reinforce that it's not efficiencies but more cost and delay that are likely to occur.

The F-35-specific data in the Omnibus' Joint Explanatory Statement (JES) calculate to a unit cost for a generic F-35 (only counting procurement costs, not research and development) at $185 million, each.  The Air Force's F-35As are $159 million, each; the Marines' F-35Bs are $214 million, each, and the Navy's F-35Cs are $264 million, each.  But none of that is the whole story; these calculations may well be undercounts of what F-35s will cost in fiscal year 2014.

The table below shows all the F-35 program actions the Omnibus revealed in its "Joint Explanatory Statement."  Several things are salient:

·         Congress reduced F-35 procurement in 2014 by a total of $652 million from the $6.014 billion requested.  (These amounts include money for "modification of aircraft," a subaccount in procurement.)

·         Despite the eleven percent reduction, not a single aircraft was removed from planned 2014 procurement. 

·         "Long Lead," or advance procurement (AP), funding for 2015 was reduced $40 million (7 percent), and the number of 2015 aircraft was reduced by three aircraft (7 percent) from the 42 planned.

·         Overall Research and Development (R&D) funding for system development (such as for software and testing) was reduced by $408 million (22 percent) from the $1.896 billion requested.

See the details in the table below.

Account	Request	Omnibus	Difference	Qnty	Comment
PROCUREMENT
Air Force (2014)	3.061	2.889	-0.172	19	19 requested
AP (2015)	0.364	0.340	-0.024	28	- 2 from the 30 requested
Navy (2014)	1.350	1.028	-0.322	4	4 requested
AP (2015)	0.095	0.079	-0.016	5	-1 from the 6 requested
Marines (2014)	1.267	1.176	-0.091	6	6 requested
AP (2015)	0.103	0.103	---	6	6 requested
Modification of Aircraft
Air Force	0.158	0.129	-0.029
Navy	0.031	0.029	-0.002
Marines	0.147	0.111	-0.036
Subtotal (Proc.)
2014	6.014	5.362	-0.652	29	$632 million less buys the same 29 aircraft requested.  (N.B.: 24% decrease in F-35C procurement has no effect on the number bought.)
2015	0.562	0.522	-0.040	39	42 requested, an increase of 10 over 2014 is funded: 9 of them in AF.
R&D
Air Force	0.816	0.628	-0.188
F-35 Sqdns	0.033	0.003	-0.030
Subtotal AF	0.849	0.631	-0.218
Navy/MC EMD	0.513	0.416	-0.097
Navy/MC	0.534	0.441	-0.093
Subtotal N/MC	1.047	0.857	-0.190		Omnibus JES does not distinguish between Navy and USMC R&D
Subtotal (R&D)	1.896	1.488	-0.408
GRAND TOTAL
2014	7.910	6.850	-1.060	29
2015 AP	0.562	0.522	-0.040	39	3 Aircraft Reduced from 2015 Request

Except for some obtuse phrases (such as describing the various reductions as money being requested "ahead of need," cuts due to "cost growth," and "program decrease for forward financing") the JES is silent on the meaning and impact of these reductions.

Accepting-for the moment-the premise that the full request of 29 F-35s can and will be bought for $652 million less than the $6.0 billion requested for procurement, we have a new unit production cost of a generic F-35 at $185 million: F-35As are $159 million each; F-35Bs are $214 million each, and F-35Cs are $264 million each.  This new calculation compares to the absurd $75 million per unit cost that a senior Lockheed Martin manager recently asserted.  Real world costs for a useable airplane are literally multiples of that.

It is not plausible that a $1.1 billion (13 percent) cut in a $8.4 billion program will not have an impact.

The $652 million reduction in the $6.0 billion request just for procurement is a good place to start wondering what is actually going on.

When we see the 29 aircraft produced and delivered for the reduced amount of $5.4 billion (not the $6.0 requested), we can accept the possibility that due to the hard driving, cost conscious approach of F-35 program managers and the Lockheed-Martin Corporation, the unit costs of generic F-35s (and of each individual model) are indeed coming down from the amount originally requested for 2014. There has been rhetoric about that; the data could bear it out, if that is actually the case.  We shall see.

There are also other possibilities.  There may be a reduction in the numbers to be produced that we have not yet been informed of.  Something similar may have already happened in 2013: sequestration and congressional cuts took over $1 billion out of the 2013 program.  DOD took actions to restore some amount of that money, but we have not seen what the final, actual dollar amounts are for 2103, and we have not seen exactly how many aircraft will actually be bought with that: the press reported speculation inside DOD that five aircraft might fall out of the 2013 buy. 

That speculation might be cleared up in the 2015 DOD budget when we see it in March.  The new budget's justification materials will include data for 2013 and 2014 (in addition to 2015); we should see more up to date numbers for 2013 and presumably 2014.  On the other hand, because these production authorizations take up to three years to result in delivered aircraft, it may be that we get the revised spending amounts only, not yet the numbers of the aircraft to actually be delivered.  The number authorized and the number to be delivered could turn out to be different. The data in the 2015 budget request may clear things up, or they may not.

We can get further insight into what is actually happening in the F-35 program by also looking at the cuts Congress exacted out of the R&D portions of the F-35 program for 2014.  Total R&D was reduced from $1.896 billion to $1.488 billion, a $408 million (21 percent) reduction.  One source explained to me that the Joint Program Office (JPO) is rolling expenses out of 2014 into subsequent fiscal years: System development is behind schedule, and costs (and delays) are being rolled forward--rather than efficiencies allowing the costs to come down.

There is independent documentation to substantiate that characterization.  The Navy's COMNAVAIRFOR recently sent a message to the Chief of Naval Operations in the context of the Navy's 2016 budget preparations.  Among various program issues, the F-35C was described to be "severely underfunded" for "simulator operations, depot overhauls, engineering, maintenance, ALIS support, etc." If "the current shortfall" is not funded to minimum levels, testing and other activities will fall behind and "the planned IOC will become unexecutable."  That shortfall was estimated at $96 million in 2016 and at $1.2 billion over the next five years in the Future Year Defense Program (FYDP). Given that the data in the message preceded the reductions extracted from Navy R&D in the Omnibus (a reduction of $190 million to a request of $1.0 billion, or 18 percent less), the delays and cost increases in future years for the F-35C can only be exacerbated.

Moreover, new DOD information leaked to Reuters, indicates that progress for the Marines F-35B is also behind schedule and presumably will need more funding, not less, to get back on track-if it can.

In sum, the information coming out of the Pentagon on the F-35 program would seem to indicate that it's not efficiencies that are occurring in the program but alterations that can only have the impact of further delays and cost increases.  The reductions Congress exacted from the program in 2014 will surely have an effect, but in the absence of more details and actual events it is unwise to assume that the trend is toward less cost, or a fulfilled schedule.

The unit costs that one can currently calculate from Congress' 2014 "Omnibus" (namely, $185 million each across all three models; $159 million for an F-35A; $214 million for an F-35B, and $264 million for an F-35C) are clearly unrealistic-unrealistically low.

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