Pentagon Must Push Back On Congressional Cuts to Keep F-35 Costs from Rising
(Source: Lexington Institute; issued October 21, 2010)
Five years ago the Pentagon had a plan for how it was going to keep the cost of each F-35 Joint Strike Fighter low. The plan was all about economies of scale. Basically, the more planes you produce each year, the less each plane costs. Sort of like building cars. So back then, the plan was to build 64 F-35s in the fifth low-rate production lot, the lot that will be funded in fiscal 2011. But a few years later the Bush Administration decided to trim the lot five buy to 52 planes. Then the Obama Administration cut it to 42. Now Senate appropriators are proposing to cut it again, to 32 -- half the original plan.

If you want to understand how a single-engine fighter can end up costing a hundred million dollars, this kind of behavior is the place to start. The contractor's plan is to sell the most common version of the F-35 for about what an existing F-16 Falcon or F/A-18 Super Hornet costs. But that plan depends on stable funding and economical production rates.

Instead, what our wasteful, disorganized government is doing is driving down the number of planes to be built each year in order to save money, which has the perverse effect of driving up the price-tag on each plane. To be precise, if Senate appropriators have their way, the program will "save" money in fiscal 2011 by cutting ten planes from the administration's request, but the price of each remaining plane will rise 10 percent.

Imagine what a Chevy Malibu would sell for if General Motors built a plant, secured suppliers and hired a workforce to manufacture 200,000 cars each year, and then only produced half that number. The fixed costs of operating the plant would drive up the price of each Malibu to a point where it was selling for what a Cadillac Escalade costs. This is how your government saves money in the near term -- by spending more money over the long term. And now that allies like the Brits are making similarly penny-wise-pound-foolish choices, the price impact is magnified.

Secretary Gates and his senior management team recently restructured the F-35 program to put it on a more sustainable basis, but if they intend to give in to the sort-sighted cuts of Senate appropriators, they might as well have saved their time. The White House and the Pentagon need to push back hard to preserve the concept of a low-cost fighter. Preemptive surrender to ill-conceived cuts will wipe out all the efficiency savings Pentagon leaders say they are trying to achieve.

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