PARIS --- After nearly two years of suspension, the Pentagon on April 1 resumed public release of its “Selected Acquisition Reports,” a document which tracks the cost of major US weapon programs on a quarterly basis. This latest SAR covers weapon costs as of December 2009.
This allows us, in turn, to update our previous evaluation of the true cost of major US military aircraft, the last of which was published in April 2007. Subsequent SARs did not document sufficient cost escalation to warrant updating our estimate.
Computing the Real Cost of US Military Aircraft
The Pentagon’s Selected Acquisition Report estimates the total cost of each major program by computing actual costs to date, when available, or by estimating future anticipated costs, when not. All estimates include anticipated inflation allowances.
The Program Acquisition Unit Cost (PAUC) figures are computed by dividing the total cost of each program by the number of units to be produced.
PAUC includes research and development costs, and some support costs. It is thus not an indication of actual acquisition prices. It is, however, the simplest, clearest and most accessible measure of real weapon costs that is publicly available.
It also offers two major advantages: it is practically immune to manipulation, and is a credible basis for direct comparisons between programs.
Latest SAR Details JSF Cost Blow-out
Unsurprisingly, the F-35 Joint Strike Fighter program continues to experience the greatest cost escalation of all US weapon programs. As well documented in our news coverage and elsewhere, this year’s SAR led the program to critically breach the Nunn-McCurdy price ceiling, which requires Congressional notification and re-certification by the Under Secretary of Defense for Acquisition, Technology & Logistics no later than June 1, 2010.
According to the latest SAR, the JSF’s Program Acquisition Unit Cost (PAUC) increased 57.2% and the Average Procurement Unit Cost (APUC) increased 57.2% compared to the original Acquisition Program Baseline (APB) to reflect the average unit price for the restructured JSF program, as estimated by the OSD Cost Assessment and Program Evaluation (CAPE)-led independent Joint Estimate Team (JET).
Specifically, in 2001, the average procurement unit cost for the JSF was estimated at $50 million base year 2002 dollars or $59 million in base year 2010 dollars. This is now estimated to fall within a range of $79 million to $95 million in base year 2002 dollars or $93 million to $112 million in base year 2010 dollars. This is a 57% to 89% increase from the original baseline.
The reasons for the Unit Cost Growth included larger-than-planned development costs driven by Short Take-Off and Vertical Landing (STOVL) variant weight growth and a longer forecasted development schedule; increase in labor and overhead rates; degradation of airframe commonality; lower production quantities; increases in commodity prices (particularly titanium); major subcontractor cost growth; and the impact of revised inflation indices.
In addition, factors that were driven by substantially higher contractor change traffic (i.e., changes in design not resulting from changes in requirements or capability), which led to increased engineering and software staffing; extended manufacturing span times; and delayed delivery of aircraft to flight test, led to a further slip of the development and flight test program.
Further, substantial cost increases are anticipated when the program’s costs are re-computed by the Pentagon in June.
US Military Aircraft: Total and Unit Costs by Program
(Source: US DoD for data; defense-aerospace.com for calculations; based on Selected Acquisition Reports to December 31, 2009) (in $ millions)
(NOTES: (1) Numbers for previous production runs (“was”) refer to previous SAR, and not necessarily to the Dec. 2006 SAR used in our previous analysis. (2) significant unit cost increases in red.)
The above table compares the current program and unit costs for major US military aircraft programs to those in our previous report, based on the December 2006 SAR.
The main conclusion is that, contrary to general perception, the cost of US military aircraft remains remarkably stable when measured on a per-unit basis, and all the more so considering that the comparison period spans three years in an industry often prone to higher-than-normal inflation.
The table also shows that, with the sole exception of the F-35 Joint Strike Fighter, Nunn/McCurdy cost breaches (marked in bold) are mostly due to increases in the number of aircraft being procured. This obviously boosts total program costs without necessarily increasing, and in fact often lowering, unit costs because of the longer production run.
Finally, it should be noted that Nunn/McCurdy breaches are computed relative to original program baseline costs, whereas our comparison only documents such changes that have occurred since the most recent relevant SAR.