Joint Strike Fighter: Restructuring Added Resources and Reduced Risk, but Concurrency Is Still a Major Concern

Published by the Government Accountability Office on 2012-03-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States Government Accountability Office

GAO                         Testimony
                            Before the Subcommittee on Tactical Air
                            and Land Forces, Committee on Armed
                            Services, House of Representatives

                            JOINT STRIKE FIGHTER
For Release on Delivery
Expected at 3:00 p.m. EDT
Tuesday, March 20, 2012

                            Restructuring Added
                            Resources and Reduced
                            Risk, but Concurrency Is
                            Still a Major Concern
                            Statement of Michael J. Sullivan, Director
                            Acquisition and Sourcing Management

                                                March 20, 2012

                                                JOINT STRIKE FIGHTER
                                                Restructuring Added Resources and Reduced Risk,
                                                but Concurrency Is Still a Major Concern
Highlights of GAO-12-525T, a testimony
before the Subcommittee on Tactical Air and
Land Forces Committee on Armed Services,
House of Representatives

Why GAO Did This Study                          What GAO Found
The F-35 Lightning II, also known as            Joint Strike Fighter (JSF) restructuring continues into a third year, adding to cost
the JSF, is DOD’s most costly and               and schedule. Since June 2010, the total cost estimate increased about $15
ambitious aircraft acquisition, seeking         billion, $5 billion for development and $10 billion for procurement. There will likely
to simultaneously develop and field             be additional changes when the Department of Defense (DOD) approves a new
three aircraft variants for the Air Force,      program baseline, expected soon. Compared to the current approved baseline
Navy, Marine Corps, and eight                   from 2007, total costs have increased about $119 billion, full-rate production has
international partners. The JSF is              been delayed 5 years, and initial operational capability dates are now unsettled
critical to DOD’s long-term                     because of program uncertainties. While the total number of aircraft the U. S.
recapitalization plans as it is intended
                                                plans to buy has not changed, DOD has for 3 straight years reduced near-term
to replace hundreds of legacy aircraft.
                                                procurement quantities, deferring aircraft and costs to future years. Since 2002,
Total U.S. investment in the JSF is
nearing $400 billion to develop and
                                                the program has reduced aircraft procurement quantities through 2017 by three-
procure 2,457 aircraft over several             fourths, from 1,591 to 365. As the program continues to experience cost growth
decades and will require a long-term,           and delays, projected annual funding needs are unprecedented, averaging more
sustained funding commitment. In                than $13 billion a year through 2035.
2010, DOD began to extensively                  Most of the instability in the program has been and continues to be the result of
restructure the program to address              highly concurrent development, testing, and production. Overall performance in
relatively poor cost, schedule, and             2011 was mixed as the program achieved 6 of 11 primary objectives.
performance outcomes.
                                                Developmental flight testing gained momentum and is about one-fifth complete
This testimony draws on GAO’s                   with the most challenging tasks still ahead. The program can expect more
extensive body of work on the JSF,              changes to aircraft design and manufacturing processes. Performance of the
including preliminary results from the          short takeoff and vertical landing variant improved this year and its “probation”
current annual review mandated in the           period to fix deficiencies was ended early, even though several fixes are
National Defense Authorization Act for          temporary and untested. Management and development of the more than 24
Fiscal Year 2010. This testimony                million lines of software code continue to be of concern and late software
discusses (1) program costs, schedule           releases have delayed testing and training. Development of the critical mission
changes, and affordability issues, (2)          systems that give the JSF its core combat capabilities remains behind schedule
performance testing results, software,          and risky. To date, only 4 percent of the mission system requirements for full
and technical risks, and (3)
                                                capability has been verified. Testing of a fully integrated JSF aircraft is now
procurement contract cost
                                                expected in 2015 at the earliest. Deficiencies with the helmet mounted display,
performance, concurrency impacts,
manufacturing results, and design               integral to mission systems functionality and concepts of operation, are most
changes. GAO’s work included                    problematic. DOD is funding a less-capable alternate helmet as a back-up. The
analyses of a wide range of program             autonomic logistics information system, a key ground system for improving
documents and interviews with                   aircraft availability and lowering support costs, is not yet fully developed.
defense and contractor officials.               Cost overruns on the first four annual procurement contracts total more than
What GAO Recommends                              $1 billion and aircraft deliveries are on average more than one year late. Officials
                                                said the government’s share of the cost growth is $672 million; this adds about
GAO has made prior recommendations              $11 million on average to the price of each of the 63 aircraft under those
to help reduce risk and improve                 contracts. In addition to the overruns, the government also incurred an estimated
outcomes, which DOD has                         $373 million in retrofit costs on produced aircraft to correct deficiencies
implemented to varying degrees.                 discovered in testing. The manufacturing process is still absorbing a higher than
GAO’s forthcoming report will address           expected number of engineering changes resulting from flight testing, which
these in detail along with potential new        makes it difficult to achieve efficient production rates. Until engineering changes
recommendations.                                are reduced, there are risks of additional cost overruns and retrofit costs. The
                                                program now estimates that the number of changes will persist at elevated levels
View GAO-12-525T. For more information,
contact Michael J. Sullivan at (202) 512-4841   through 2019. Even with the substantial reductions in near-term procurement
or sullivanm@gao.gov.                           quantities, DOD is still investing billions of dollars on hundreds of aircraft while
                                                flight testing has years to go.
                                                                                          United States Government Accountability Office
Chairman Bartlett, Ranking Member Reyes, and Members of the

Thank you for the opportunity to discuss our work on the F-35 Lightning II,
also known as the Joint Strike Fighter (JSF). The JSF is the Department
of Defense’s (DOD) most costly and ambitious aircraft acquisition,
seeking to simultaneously develop and field three aircraft variants for the
Air Force, Navy, Marine Corps, and eight international partners. The JSF
is critical to DOD’s long-term recapitalization plans as it is intended to
replace hundreds of legacy fighters and strike aircraft. Total U.S.
investment in the JSF will be substantial—approaching $400 billion to
develop and acquire 2,457 aircraft over the next few decades—and will
require a long-term sustained funding commitment. Over the last 2 years,
the JSF program has been extensively restructured to address relatively
poor cost, schedule, and performance outcomes.

We have reported on JSF issues for a number of years. 1 A recurring
theme in our body of work since 2005 has been a concern about the
substantial concurrency, or overlap, of JSF development, test, and
production activities and the heightened risk it poses to achieving good
program outcomes. The effects of concurrency became apparent in 2011
as the JSF program incurred an estimated $373 million in additional costs
to retrofit already-built aircraft to correct deficiencies discovered during
testing. Our prior reports have also made numerous recommendations for
reducing risks and improving chances for successful outcomes. DOD has
agreed with and taken actions on these recommendations to varying
degrees. More detail on the status of these prior recommendations will be
provided in our forthcoming report. In April 2011, we reported that the
department’s restructuring actions should lead to more achievable and
predictable outcomes, albeit at higher costs and with extended times to
test and deliver capabilities to the warfighter. 2 The report also identified
continuing issues concerning affordability risks (both for acquiring JSF
aircraft and supporting them over the life-cycle), delays in software
development, a continued high rate of design changes, and immature
manufacturing processes.

    See related GAO products at the end of this statement.
 GAO, Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but
Progress Still Lags, GAO-11-325 (Washington, D.C.: Apr. 7, 2011).

Page 1                                                                     GAO-12-525T
                      This testimony is largely based on preliminary results from our latest
                      review. The National Defense Authorization Act for Fiscal Year 2010 3
                      requires GAO to review the JSF program annually for 6 years. We plan to
                      issue our detailed report in April to incorporate new baseline cost and
                      schedule data. My testimony will address (1) program cost and schedule
                      changes and their implications on affordability; (2) performance testing
                      results and technical risks; and (3) contract cost performance,
                      concurrency impacts, and design and manufacturing maturity. To conduct
                      this work, we reviewed program status reports, manufacturing data,
                      contracts, test plans and performance, and internal DOD analyses. We
                      evaluated restructuring actions and impacts, tracked cost and schedule
                      changes, and identified factors driving the changes. We discussed
                      program results to date and future plans with officials from the Office of
                      the Secretary of Defense (OSD), JSF program office, military services,
                      other defense offices, and contractors. We toured aircraft and engine
                      manufacturing plants, obtained production and supply performance
                      indicators, and discussed improvements underway with contractors. We
                      discussed the information used to prepare this testimony with DOD
                      officials and included their comments as appropriate. We conducted this
                      performance audit from June 2011 to March 2012 in accordance with
                      generally accepted government auditing standards. Those standards
                      required that we plan and perform the audit to obtain sufficient,
                      appropriate evidence to provide a reasonable basis for our findings and
                      conclusions based on our audit objectives. We believe that evidence
                      obtained provides a reasonable basis for our findings and conclusions
                      based on our audit objectives.

                      JSF restructuring continued throughout 2011 and into 2012 with
Restructuring         additional costs and extended schedules incurred for key activities and
Reduces Near Term     decisions. The Department’s actions have helped reduce near term risks
                      by lowering annual procurement quantities and allowing more time for
Risk, but Long Term   flight testing. The Department is expected to soon approve a new
Affordability Is      acquisition program baseline that will likely make further changes in cost
Challenging           and schedule. This decision, critical for program management and
                      oversight, has been delayed several times and it has now been 2 years
                      since the Department announced that the JSF program had breached the

                          Pub. L. No. 111-84 § 244 (2009).

                      Page 2                                                          GAO-12-525T
critical cost growth statutory thresholds 4 and that a new baseline would
be established. Table 1 tracks historical changes in cost, schedule, and
quantities since the start of development (2001), a major redesign (2004),
a new baseline following the program’s Nunn-McCurdy breach of the
significant cost growth statutory threshold (2007), initial restructuring
actions after the second Nunn-McCurdy breach (2010), and an interim
DOD cost estimate (2011).

  Commonly referred to as Nunn-McCurdy, 10 U.S.C. § 2433 establishes the requirements
for DOD to submit unit cost reports on major defense acquisition programs or designated
major subprograms. Two measures are tracked against the current and original baseline
estimates for a program: procurement unit cost (total procurement unit funds divided by
the quantity of systems procured) and program acquisition unit cost (total funds for
development, procurement, and system-specific military construction divided by the
quantity of systems procured). If a program’s procurement unit cost or acquisition unit cost
increases by at least 25 percent over the current baseline estimate or at least 50 percent
over the original baseline estimate, it constitutes a breach of the critical cost growth
threshold. Programs are required to notify Congress if a Nunn-McCurdy breach is
experienced. When a program experiences a Nunn-McCurdy breach of the critical cost
growth threshold, DOD is required to take a number of steps, including reassessing the
program and submitting a certification to Congress in order to continue the program, in
accordance with 10 U.S.C. § 2433a.

Page 3                                                                         GAO-12-525T
Table 1: JSF Program Cost and Quantity Estimates over Time

                         October 2001 (system       December 2003                     March 2007         June 2010 June 2011 (interim
                           development start)         (2004 replan)           (approved baseline)   (Nunn-McCurdy)    DOD estimate)
Expected quantities
quantities                                  14                         14                     15                14                14
quantities (U.S. only)                   2,852                     2,443                   2,443              2,443             2,443
Total quantities                         2,866                     2,457                   2,458              2,457             2,457
Cost estimates (then-year dollars in billions)
Development                              $34.4                     $44.8                   $44.8              $51.8             $56.6
Procurement                              196.6                     199.8                   231.7              325.1             335.6
Military construction                      2.0                        0.2                     2.0               5.6               4.9
Total program
acquisition                            $233.0                    $244.8                   $278.5             $382.5            $397.1
Unit cost estimates (then-year dollars in millions)
Program acquisition                       $81                       $100                    $113              $156              $162
Average procurement                         69                         82                     95               133               137
Estimated delivery and production dates
First production
aircraft delivery                        2008                       2009                    2010              2010              2011
Initial operational
capability                          2010-2012               2012-2013                  2012-2015               TBD               TBD
Full-rate production                     2012                       2013                    2013              2016              2018
                                          Source: GAO analysis of DOD data.

                                          The interim total program cost estimate increased about $15 billion since
                                          the June 2010 estimate included in the Nunn-McCurdy certification, about
                                          $5 billion for development and $10 billion for procurement. Compared to
                                          the current approved baseline set in 2007, total costs have increased
                                          about $119 billion, unit procurement costs have risen more than 40
                                          percent, and the start of full-rate production has been delayed 5 years.
                                          The department anticipates releasing its new cost and schedule
                                          estimates within the next few weeks. Department officials have indicated
                                          that the new figures will not be significantly different from the June 2011
                                          interim estimate. Initial operational capability dates for the Air Force, Navy
                                          and Marine Corps—the critical dates when the warfighter expects the
                                          capability promised by the acquisition program to be available—have
                                          been delayed over time and are now unsettled. Until greater clarity is
                                          provided on the program’s path forward, the military services are likely to
                                          wait to commit to new initial operational capability dates.

                                          Page 4                                                                          GAO-12-525T
                                       Concerned about concurrency risks, in February 2012, DOD reduced
                                       planned procurement quantities through fiscal year 2017 by 179 aircraft.
                                       This marked the third time in 3 years that near-term quantities were cut;
                                       combined with other changes since 2008, total JSF procurement quantity
                                       has been reduced by 410 aircraft through fiscal year 2017. Since the
                                       department still plans to eventually acquire the full complement of U.S.
                                       aircraft—2,443 procurement jets—the procurement costs, fielding
                                       schedules, and support requirements for the deferred aircraft will be
                                       incurred in future years beyond 2017. Figure 1 shows how planned
                                       quantities in the near-term have steadily declined over time. With the
                                       latest reduction, the program now plans to procure a total of 365 aircraft
                                       through 2017, about one-fourth of the 1,591 aircraft expected in the 2002

Figure 1: Changes in Procurement Plans over Time

                                       Slowing down procurement plans reduces concurrency risks to a degree,
                                       but overall program affordability—both in terms of the investment costs to
                                       acquire the JSF and the continuing costs to operate and maintain it over

                                       Page 5                                                          GAO-12-525T
the life-cycle—remains a major risk. The long-stated intent that the JSF
program would deliver an affordable, highly common fifth generation
aircraft that could be acquired in large numbers could be in question. As
the JSF program moves forward, unprecedented levels of funding will be
required during a period of more constrained defense funding
expectations overall. As shown in figure 2, the JSF annual funding
requirements average more than $13 billion through 2035, and approach
$16 billion annually for an extended period. The Air Force alone needs to
budget from $8 to $11 billion per year from fiscal year 2016 through 2035
for procurement. 5 At the same time, the Air Force is committed to other
big-dollar projects such as the KC-46 tanker and a new bomber program.

  This is based on information contained in the December 2010 Selected Acquisition
Report. Updated funding information for the entire JSF acquisition life-cycle was not
available at the time of this testimony. The new baseline information is expected to add to
JSF total costs through completion and change the distribution of annual budget
requirements, but still show very large budget demands over a long period of time.

Page 6                                                                         GAO-12-525T
Figure 2: JSF Budgeted Development and Procurement Funding Requirements

                                     Much of the instability in the JSF program has been and continues to be
Mixed Performance in                 the result of highly concurrent development, testing, and production
2011 Affected by                     activities. During 2011, overall performance was mixed as the program
                                     achieved 6 of 11 primary objectives for the year. Developmental flight
Concurrency and                      testing has recently gained momentum, but has a long road ahead with
Technical Risks                      testing of the most complex software and advanced capabilities still in the
                                     future. JSF software development is one of the largest and most complex
                                     projects in DOD history, providing essential capability, but software has
                                     grown in size and complexity, and is taking longer to complete than
                                     expected. Developing, testing, and integrating software, mission systems,
                                     and logistics systems are critical for demonstrating the operational
                                     effectiveness and suitability of a fully integrated, capable aircraft and pose
                                     significant technical risks moving forward.

                                     Page 7                                                             GAO-12-525T
Program Performance        The JSF program achieved 6 of 11 primary objectives it established for
against 2011 Objectives    2011. Five of the objectives were specific test and training actions tied to
and Test Plans Was Mixed   contractual expectations and award fees, according to program officials.
                           The other 6 objectives were associated with cost, schedule, contract
                           negotiations, and sustainment. The program successfully met 2 important
                           test objectives: the Marine Corps’ short takeoff and vertical landing
                           (STOVL) variant accomplished sea trials and the Navy’s carrier variant
                           (CV) completed static structural testing. Two other test objectives were
                           not met: the carrier variant did not demonstrate shipboard suitability
                           because of problems with the tail hook, which requires redesign, and
                           software was not released to flight test on time. The program also
                           successfully completed objectives related to sustainment design reviews,
                           schedule data, manufacturing processes, and cost control, but did not
                           meet a training deadline or complete contract negotiations.

                           Development flight testing sustained momentum begun in 2010 and met
                           or exceeded most objectives in its modified test plan for 2011. The
                           program accomplished 972 test flights in 2011, more than double the
                           flights in 2010. Flight test points 6 accomplished exceeded the plan,
                           overall as shown in figure 3. The flight test points accomplished on the Air
                           Force’s conventional takeoff and landing (CTOL) variant were less than
                           planned, due to operating limitations and aircraft reliability.

                            Flight test points are specific, quantifiable objectives in flight plans that are needed to
                           verify aircraft design and performance.

                           Page 8                                                                            GAO-12-525T
Figure 3: 2011 JSF Flight Test Points Progress

Even with the progress made in 2011, most development flight testing,
including the most challenging, still lies ahead. Through 2011, the flight
test program had completed 21 percent of the nearly 60,000 planned
flight test points estimated for the entire program. 7 Program officials
reported that flight tests to date have largely demonstrated air worthiness,
flying qualities, speed, altitude, and maneuvering performance
requirements. According to JSF test officials, the more complex testing
such as low altitude flight operations, weapons and mission systems
integration, and high angle of attack has yet to be done for any variant
and may result in new discoveries. Initial development flight tests of a fully

  According to program officials, completion of a test point means that the test point has
been flown and that flight engineers ruled that the point has met the need. Further
analysis may be necessary for the test point to be closed out.

Page 9                                                                         GAO-12-525T
                                 integrated, capable JSF aircraft to demonstrate full mission systems
                                 capabilities, weapons delivery, and autonomic logistics is now expected in
                                 2015 at the earliest. This will be critical for verifying that the JSF aircraft
                                 will work as intended and for demonstrating that the design is not likely to
                                 need costly changes. Like other major weapon system acquisitions, the
                                 JSF will be susceptible to discovering costly problems later in
                                 development when the more complex software and advanced capabilities
                                 are integrated and flight tested. With most development flight testing still
                                 to go, the program can expect more changes to aircraft design and
                                 continued alterations of manufacturing processes.

STOVL Issues and Its Probation   The STOVL variant performed better than expected in flight tests during
Period                           2011. It increased flight test rates and STOVL-specific mode testing,
                                 surpassing planned test point progress for the year. Following reliability
                                 problems and performance issues, the Secretary of Defense in January
                                 2011 had placed the STOVL on “probation” for two years, citing technical
                                 issues unique to the variant that would add to the aircraft’s cost and
                                 weight. The probation limited the U.S. STOVL procurement to three
                                 aircraft in fiscal year 2011 and six aircraft in fiscal year 2012 and
                                 decoupled STOVL testing from CV and CTOL testing so as not to delay
                                 those variants. While no specific exit criteria was defined, the two year
                                 probation was expected to provide enough time to address STOVL-
                                 specific technical issues, engineer solutions, and assess their impact.

                                 In January 2012, the Secretary of Defense lifted the STOVL probation
                                 after one year, citing improved performance and completion of the initial
                                 sea trials as a basis for the decision. The Department concluded that
                                 STOVL development, test, and product maturity is now comparable to the
                                 other two variants. While several technical issues have been addressed
                                 and some potential solutions engineered, assessing whether the
                                 deficiencies are resolved is ongoing and, in some cases, will not be
                                 known for years. According to the program office, two of the five specific
                                 problems cited are considered to be fixed while the other three have
                                 temporary fixes in place. The Director, Operational Test and Evaluation
                                 reported that significant work remains to verify and incorporate
                                 modifications to correct known STOVL deficiencies and prepare the
                                 system for operational use. Until the proposed technical solutions have
                                 been fully tested and demonstrated, it cannot be determined if the
                                 technical problems have been resolved.

                                 Page 10                                                             GAO-12-525T
                       Software providing essential JSF capability has grown in size and
Software and Mission   complexity, and is taking longer to complete than expected. Late releases
Systems Represent      of software have delayed testing and training, and added costs. Software
                       defects, low productivity, and concurrent development of successive
Significant Risks      blocks have created inefficiencies, taking longer to fix defects and
                       delaying the demonstration of critical capabilities. The program has
                       modified the software development and integration schedule several
                       times, in each instance lengthening the time needed to complete work. In
                       attempting to maintain schedule, the program has deferred some
                       capabilities to later blocks. Deferring tasks to later phases of development
                       adds more pressure and costs to future efforts and likely increases the
                       probability of defects being realized later in the program, when the more
                       complex capabilities in these later blocks are already expected to be a
                       substantial technical challenge.

                       The lines of code necessary for the JSF’s capabilities have now grown to
                       over 24 million—9.5 million on board the aircraft. By comparison, JSF
                       has about 3 times more on-board software lines of code than the F-22A
                       Raptor and 6 times more than the F/A-18 E/F Super Hornet. This has
                       added work and increased the overall complexity of the effort. The
                       software on-board the aircraft and needed for operations has grown 37
                       percent since the critical design review in 2005. While software growth
                       appears to be moderating, contractor officials report that almost half of
                       the on-board software has yet to complete integration and test—typically
                       the most challenging phase of software development. JSF software
                       growth is not much different than other recent defense acquisitions which
                       have experienced from 30 to 100 percent growth in software code over
                       time. However, the sheer number of lines of code for the JSF makes the
                       growth a notable cost and schedule challenge.

                       JSF’s mission systems 8 and logistics systems are critical to realizing the
                       operational and support capabilities expected by the warfighter, but the
                       hardware and software for these systems are immature and unproven at
                       this time. Only 4 percent of mission systems requirements have been
                       verified and significant learning and development remains before the
                       program can demonstrate mature software and hardware. The program

                         Mission systems provide combat effectiveness through next generation sensors with
                       fused information from on-board and off-board systems (i.e., Electronic Warfare,
                       Communication Navigation Identification, Electro-Optical Target System, Electro-Optical
                       Distributed Aperture System, Radar, and Data Links).

                       Page 11                                                                     GAO-12-525T
has experienced significant technical challenges developing and
integrating mission and logistics systems software and hardware,
including problems with the radar, integrated processor, communication
and navigation equipment, and electronic warfare capabilities.

•   Problems with the helmet mounted display may pose the greatest risk.
    The helmet is integral to fusing and displaying sensor and weapons
    employment data, providing situational awareness, and reducing pilot
    workload. Helmet shortfalls–including night vision capability, display
    jitter (varying image), and latency (or delay) in transmitting data–could
    limit capability or change operational concepts. DOD is pursuing a
    dual path by funding a less-capable alternate helmet as a back-up;
    this development effort will cost more than $80 million. The selected
    helmet will not be integrated with the baseline aircraft until 2014 or
    later, increasing the risks of a major system redesign, retrofits of
    already built aircraft, or changes in concepts of operation.

•   The Autonomic Logistics Information System (ALIS) is a ground
    system essential to managing and streamlining logistics and
    maintenance functions and for controlling life-cycle operating and
    support costs. ALIS is also not mature and may require some design
    changes to address known deficiencies. ALIS is in limited operations
    at test and training sites and officials are evaluating proposed
    solutions. While additional development time and resources may
    resolve some deficiencies, several requirements are not going to be
    met given current schedules, according to the JSF test team report.

Initial dedicated operational testing of a fully integrated JSF is tentatively
scheduled to begin in 2017. Operational testing is important for evaluating
the warfighting effectiveness and suitability of the JSF, and successfully
completing initial operational testing is required to support the full rate
production decision, now expected in 2019. Operational testers assessed
progress of JSF development testing and its readiness for operational
testing, and concluded that the program was not on track to meet
operational effectiveness or suitability requirements. The test team’s
October 2011 report identified deficiencies with the helmet mounted
display, night vision capability, aircraft handling characteristics, and
shortfalls in maneuvering performance. The report also cited an
inadequate logistics system for deployments, excessive time to repair and
restore low observable features, low reliability, and poor maintainability
performance. It also stated that the JSF will require substantial
improvements in order to achieve sortie generation rates and life cycle
cost requirements.

Page 12                                                            GAO-12-525T
                                       The program has not yet demonstrated a stable design and
Contract Overruns                      manufacturing processes capable of efficient production. Engineering
and Concurrency                        changes are persisting at relatively high rates and additional changes will
                                       be needed as testing continues. Manufacturing processes and
Costs Indicate the                     performance indicators show some progress, but performance on the first
Program Has Not Yet                    four low-rate initial production contracts has not been good. All four have
Stabilized Design and                  experienced cost overruns and late aircraft deliveries. In addition, the
                                       government is also incurring substantial additional costs to retrofit
Manufacturing                          produced aircraft to correct deficiencies discovered in testing. Until
                                       manufacturing processes are in control and engineering design changes
                                       resulting from information gained during developmental testing are
                                       reduced, there is risk of more cost growth. Actions the Department has
                                       taken to restructure the program have helped, but remaining concurrency
                                       between flight testing and production continues to put cost and schedule
                                       at risk. Even with the substantial reductions in near-term procurement
                                       quantities, DOD is still investing billions of dollars on hundreds of aircraft
                                       while flight testing has years to go.

Cost Overruns and                      As was the experience with building the development test aircraft,
Delivery Delays Indicate               manufacturing the procurement aircraft is costing more and taking longer
Need to Further Mature                 than planned. Cost overruns and delivery slips are two indicators that
                                       manufacturing processes, worker efficiency, quality control, and supplier
the Manufacturing Process              performance are not yet sufficiently capable to handle the volume of work
                                       scheduled. Cost overruns on each of the first four annual procurement
                                       contracts are projected to total about $1 billion (see table 2).

Table 2: Procurement Contract Costs as of November 2011

Dollars in millions
                           Number                Contract                  Current contract                 Cost                     Percent
Contract                 of aircraft        cost at award                    cost estimate              increase                    increase
LRIP 1                            2                   $511.7                        $561.5                  $49.8                        9.7
LRIP 2                           12                 $2,278.5                       $2,607.7                $329.2                       14.4
LRIP 3                           17                 $3,154.2                       $3,569.5                $415.3                       13.2
LRIP 4                           32                 $3,458.3                       $3,703.3                $245.0                        7.1
Total                            63                 $9,402.7                     $10,442.0               $1,039.3                       11.1
                                       Source: GAO analysis of DOD data.

                                       Note: LRIP is low-rate initial production. These are the first four annual procurements.

                                       Page 13                                                                                    GAO-12-525T
According to program documentation, through the cost sharing provisions
in these contracts, the government’s share of the total overrun is about
$672 million. On average, the government is paying an additional $11
million for the 63 aircraft on under contract (58 are U.S. aircraft and 5 are
for international partners). There is risk of additional cost overruns
because all work is not completed. Defense officials reduced the buy
quantity in the fifth annual procurement contract to help fund these cost
overruns and additional retrofit costs to fix deficiencies discovered in

While Lockheed Martin, the prime contractor, is demonstrating somewhat
better throughput capacity and showing improved performance indicators,
the lingering effects of critical parts shortages, out of station work 9, and
quality issues continue to be key cost and schedule drivers on the first
four production lots. Design modifications to address deficiencies
discovered in testing, incorporation of bulkhead and wing process
improvements, and production of the first carrier variant further impacted
manufacturing during 2011. Lockheed had expected to deliver 30
procurement aircraft by the end of 2011 but delivered only nine
procurement aircraft. Each was delivered more than 1 year late. The
manufacturing effort still has thousands of aircraft planned for production
over the next 25 years and the rate of production is expected to increase
substantially starting in 2015. This will make it vital that the contractor
achieve an efficient manufacturing process.

Pratt & Whitney, the engine manufacturer, had delivered 42 production
engines and 12 lift fans at the time of our review. 10 Like the aircraft
system, the propulsion system is still under development working to
complete testing and fix deficiencies while concurrently delivering engines
under the initial procurement contracts. The program office’s estimated
cost for the system development and demonstration of the engine has
increased by 75 percent, from $4.8 billion to $8.4 billion, since the start of
development. Engine deliveries continue to miss expected contract due
dates but still met aircraft need dates because of longer slips in aircraft

  Out of station work occurs when manufacturing steps are not completed at its
designated work station and must be finished elsewhere later in production. This is highly
inefficient, increasing labor hours, causing delays, and sometimes quality problems.
   Note: The prime engine contractor has production contracts with the government and
the engines are provided as government furnished equipment to the JSF prime contractor.

Page 14                                                                       GAO-12-525T
                          production. Supplier performance problems and design changes are
                          driving cost increases and late engines. Lift fan system components and
                          processes are driving the major share of cost and schedule problems.

                          Going forward, Lockheed Martin’s ability to manage its expanding global
                          supplier network is fundamental to meeting production rates and
                          throughput expectations. DOD’s Independent Manufacturing Review
                          Team earlier identified global supply chain management as the most
                          critical challenge for meeting production expectations. The cooperative
                          aspect of the supply chain provides both benefits and challenges. The
                          international program structure is based on a complex set of relationships
                          involving both government and industry from the United States and eight
                          other countries. Overseas suppliers are playing a major and increasing
                          role in JSF manufacturing and logistics. For example, center fuselage and
                          wings will be manufactured by Turkish and Italian suppliers, respectively,
                          as second sources. In addition to ongoing supplier challenges–parts
                          shortages, failed parts, and late deliveries– incorporating international
                          suppliers presents additional challenges. In addition, the program must
                          deal with exchange rate fluctuations, disagreements over work shares,
                          technology transfer concerns, different accounting methods, and
                          transportation requirements that have already caused some delays. Also,
                          suppliers have sometimes struggled to develop critical and complex parts
                          while others have had problems with limited production capacity.
                          Lockheed Martin has implemented a stricter supplier assessment
                          program to help manage supplier performance.

Testing and Production    We and several defense offices cautioned the Department years ago
Overlap Increases         about the risks posed by the extremely high degree of concurrency, or
Engineering Changes and   overlap, among the JSF development, testing, and production activities. 11
                          To date, the Government has incurred an estimated $373 million in retrofit
Concurrency Costs
                          costs on already-built aircraft to correct deficiencies discovered in
                          development testing. This is in addition to the $672 million for the
                          government’s share of contract cost overruns. The program office
                          projects additional retrofit costs through lot 10, but at decreasing
                          amounts. Questions about who will pay for additional retrofit costs under

                             GAO, Joint Strike Fighter: DOD Plans to Enter Production before Testing Demonstrates
                          Acceptable Performance, GAO-06-356 (Washington, D.C.: Mar. 15, 2006) and GAO, Joint
                          Strike Fighter: Progress Made and Challenges Remain, GAO-07-360 (Washington, D.C.:
                          Apr. 2, 2007).

                          Page 15                                                                    GAO-12-525T
                                         the planned fixed price contracts–the contractor or the government–and
                                         how much, have delayed final contract negotiations on the fifth lot.

                                         Producing aircraft before testing sufficiently demonstrates the design is
                                         mature increases the likelihood of future design changes, which drives
                                         cost growth, schedule delays, and manufacturing inefficiencies. Design
                                         changes needed in one JSF variant could also impact the other two
                                         variants, reducing efficiencies necessary to lower production and
                                         operational costs with common parts and manufacturing processes for
                                         the three variants. While the JSF program’s engineering change traffic–
                                         the monthly volume of changes made to engineering drawings–is
                                         declining, it is still higher than expected for a program entering its sixth
                                         year of production. The total number of engineering drawings continues to
                                         grow due to design changes, discoveries during ground and flight testing,
                                         and other revisions to drawings. Figure 4 tracks design changes over time
                                         and shows that changes are expected to persist at an elevated pace
                                         through 2019.

Figure 4: JSF Design Changes Over Time

                                         Page 16                                                          GAO-12-525T
Defense officials have long acknowledged the substantial concurrency
built into the JSF acquisition strategy, but until recently stated that risks
were manageable. However, a recent high-level departmental review of
JSF concurrency determined that the program is continuing to discover
issues at a rate more typical of early design experience, questioning the
assumed design maturity that supported the highly concurrent acquisition
strategy. 12 DOD’s November 2011 report concluded that the “team
assesses the current confidence in the design maturity of the F-35 to be
lower than one would expect given the quantity of LRIP aircraft
procurements planned and the potential cost of reworking these aircraft
as new test discoveries are made. This lack of confidence, in conjunction
with the concurrency driven consequences of the required fixes, supports
serious reconsideration of procurement and production planning.” The
review identified substantial risk of needed modifications to already
produced aircraft as the flight testing enters into more strenuous test
activities. Already, as a result of problems found in less strenuous basic
airworthiness testing, critical design modifications are being fed back
through the production line. For example, the program will be cutting in
aircraft modifications to address bulkhead cracks discovered during
airframe ground testing and STOVL auxiliary inlet door durability issues.
More critical test discoveries are likely as the program moves into the
more demanding phases of testing.

Restructuring actions by the Department since early 2010 have provided
the JSF program with more achievable development and production
goals, and has reduced, but not eliminated, risks of additional retrofit
costs due to concurrency in current and future lots. The Department has
progressively lowered the production ramp-up rate and cut near term
procurement quantities; fewer aircraft procured while testing is still
ongoing lowers the risk of having to modify already produced aircraft.
However, even with the most recent reductions in quantities, the program
will still procure a large number of aircraft before system development is
complete and flight testing confirms that the aircraft design and
performance meets warfighter requirements. Table 3 shows the current
plan that will procure 365 aircraft for $69 billion by the end of planned
developmental flight tests.

  F-35 Joint Strike Fighter Concurrency Quick Look Review, Office of the Under
Secretary of Defense for Acquisition, Technology and Logistics, Nov. 29, 2011.

Page 17                                                                    GAO-12-525T
Table 3: JSF Procurement Investments and Flight Test Progress

fiscal years                 2007    2008        2009         2010          2011          2012       2013    2014    2015     2016       2017
Cumulative procurement
(billions of dollars)        $0.8     $3.5       $7.1        $14.3         $21.3         $27.6       $33.8   $40.1   $47.9   $57.8      $69.0
Cumulative aircraft
procured                        2      14           28            58            90          121       150     179     223      289         365
Percentage of total
planned flight tests
completed (est.)               <1      <1           <1              1            5              17     32      52      72        91        100
                                       Source: GAO analysis of DOD budget and test plan data.

                                       Note: Advanced procurement funding from 2006 was incorporated into fiscal year 2007 total funding,
                                       as 2007 was the first year of aircraft procurement. Flight testing data reflect the percentage of the
                                       total flight test completed at the time of the planned investment decision, which is the beginning of the
                                       fiscal year.

                                       Over the last 2 years, the JSF program has undergone extensive
Concluding                             restructuring that places it on a more achievable course, albeit a lengthier
Observations                           and more expensive one. At the same time, the near-constant churn
                                       (change) in cost, schedule, and performance expectations has hampered
                                       oversight and insight into the program, in particular the ability to firmly
                                       assess progress and prospects for future success. Going forward, it will
                                       be imperative to bring stability to the program and provide a firm
                                       understanding of near- and far-term financial requirements so that all
                                       parties—the Congress, Defense Department, and international partners—
                                       can reasonably set priorities and make informed decisions amid a tough
                                       fiscal environment.

                                       The JSF remains the critical centerpiece of DOD’s long-term tactical
                                       aircraft portfolio. System development of the aircraft and engine ongoing
                                       for over a decade, continue to experience significant challenges. The
                                       program’s strategic framework, laden with concurrency, has proved to be
                                       problematic and ultimately, a very costly approach. DOD over the past
                                       year has identified substantial cost overruns attributed to relatively poor
                                       execution in production and specific concurrency-related inefficiencies.
                                       There is risk of future cost growth from test discoveries driving changes to
                                       design and manufacturing processes. Effectively managing software and
                                       the global supply chain is critical to improving program outcomes,
                                       increasing manufacturing throughput, and enabling future expansion of
                                       JSF procurement.

                                       Page 18                                                                                   GAO-12-525T
                   Chairman Bartlett, Ranking Member Reyes, and members of the House
                   Armed Services Committee, this completes my prepared statement. I
                   would be pleased to respond to any questions you may have. We look
                   forward to continuing to work with the Congress as we finalize our
                   upcoming report with potential new recommendations that will address
                   these issues in more detail.

                   For further information on this statement, please contact Michael Sullivan
GAO Contacts and   at (202) 512-4841 or sullivanm@gao.gov. Contact points for our Office of
Acknowledgments    Congressional Relations and Public Affairs may be found on the last page
                   of this statement. Individuals making key contributions to this statement
                   are Bruce Fairbairn, Charlie Shivers, LeAnna Parkey, W. Kendal Roberts,
                   Sean Merrill, and Matt Lea.

                   Page 19                                                        GAO-12-525T
Related GAO Products
             Related GAO Products

             Joint Strike Fighter: Implications of Program Restructuring and Other
             Recent Developments on Key Aspects of DOD’s Prior Alternate Engine
             Analyses. GAO-11-903R. Washington, D.C.: September 14, 2011.

             Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but
             Progress Is Still Lagging. GAO-11-677T. Washington, D.C.: May 19,

             Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but
             Progress Still Lags. GAO-11-325. Washington, D.C.: April 7, 2011.

             Joint Strike Fighter: Restructuring Should Improve Outcomes, but
             Progress Is Still Lagging Overall. GAO-11-450T. Washington, D.C.:
             March 15, 2011.

             Defense Management: DOD Needs to Monitor and Assess Corrective
             Actions Resulting from Its Corrosion Study of the F-35 Joint Strike
             Fighter. GAO-11-171R. Washington D.C.: December 16, 2010.

             Joint Strike Fighter: Assessment of DOD’s Funding Projection for the
             F136 Alternate Engine. GAO-10-1020R. Washington, D.C.: September
             15, 2010.

             Tactical Aircraft: DOD’s Ability to Meet Future Requirements is Uncertain,
             with Key Analyses Needed to Inform Upcoming Investment Decisions.
             GAO-10-789. Washington, D.C.: July 29, 2010.

             Joint Strike Fighter: Significant Challenges and Decisions Ahead.
             GAO-10-478T. Washington, D.C.: March 24, 2010.

             Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting
             Warfighter Requirements on Time. GAO-10-382. Washington, D.C.:
             March 19, 2010.

             Joint Strike Fighter: Significant Challenges Remain as DOD Restructures
             Program. GAO-10-520T. Washington, D.C.: March 11, 2010.

             Joint Strike Fighter: Strong Risk Management Essential as Program
             Enters Most Challenging Phase. GAO-09-711T. Washington, D.C.:
             May 20, 2009.

             Page 20                                                         GAO-12-525T
           Related GAO Products

           Joint Strike Fighter: Accelerating Procurement before Completing
           Development Increases the Government’s Financial Risk. GAO-09-303.
           Washington D.C.: March 12, 2009.

           Joint Strike Fighter: Impact of Recent Decisions on Program Risks.
           GAO-08-569T. Washington, D.C.: March 11, 2008.

           Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks.
           GAO-08-388. Washington, D.C.: March 11, 2008.

           Tactical Aircraft: DOD Needs a Joint and Integrated Investment Strategy.
           GAO-07-415. Washington, D.C.: April 2, 2007.

           Defense Acquisitions: Analysis of Costs for the Joint Strike Fighter Engine
           Program. GAO-07-656T. Washington, D.C.: March 22, 2007.

           Joint Strike Fighter: Progress Made and Challenges Remain.
           GAO-07-360. Washington, D.C.: March 15, 2007.

           Tactical Aircraft: DOD’s Cancellation of the Joint Strike Fighter Alternate
           Engine Program Was Not Based on a Comprehensive Analysis.
           GAO-06-717R. Washington, D.C.: May 22, 2006.

           Tactical Aircraft: Recapitalization Goals Are Not Supported by
           Knowledge-Based F-22A and JSF Business Cases. GAO-06-487T.
           Washington, D.C.: March 16, 2006.

           Joint Strike Fighter: DOD Plans to Enter Production before Testing
           Demonstrates Acceptable Performance. GAO-06-356. Washington, D.C.:
           March 15, 2006.

           Joint Strike Fighter: Management of the Technology Transfer Process.
           GAO-06-364. Washington, D.C.: March 14, 2006.

           Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications for
           Tactical Aircraft Modernization. GAO-05-519T. Washington, D.C: April 6,

           Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike Fighter
           Program with Different Acquisition Strategy. GAO-05-271. Washington,
           D.C.: March 15, 2005.

           Page 21                                                           GAO-12-525T
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