oversight

Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program

Published by the Government Accountability Office on 1997-06-04.

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

                   United States General Accounting Office

GAO                Report to the Honorable
                   Dale Bumpers, U.S. Senate



June 1997
                   TACTICAL AIRCRAFT
                   Restructuring of the
                   Air Force F-22 Fighter
                   Program




GAO/NSIAD-97-156
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276815

             June 4, 1997

             The Honorable Dale Bumpers
             United States Senate

             Dear Senator Bumpers:

             In response to your request of February 24, 1997, we reviewed the Air
             Force’s February 1997 plans to restructure the F-22 program. This report
             presents our observations regarding the estimated cost of the restructured
             program and viability of cost reduction initiatives, planned timing for
             realization of benefits from initiatives, and criteria for approving initiation
             and continuation of production.

             An important factor that will significantly impact the cost of the
             restructured program, and the viability of cost reduction initiatives
             discussed in this report is the Quadrennial Defense Review, which was
             released in mid-May. This review calls for reductions in the F-22 low-rate
             initial production (LRIP) quantity, the total production quantity, and the
             production rates. Because the production quantities and rates were basic
             assumptions guiding the February 1997 F-22 restructuring plan, changes in
             the F-22 program that result from the review will require reevaluation of
             the cost of the program, the potential for cost reductions, and the contract
             strategy. Nevertheless, the information in this report provides an
             important historical and contextual framework for decisionmakers as they
             debate the issues surrounding the F-22.


             The F-22 is an air superiority aircraft with a capability to deliver
Background   air-to-ground weapons. Advanced technology being developed for the F-22
             makes it “. . . a very ambitious, challenging program, probably the most
             challenging program in recent times,” according to the Department of
             Defense’s (DOD) Defense Science Board. The most significant features
             include supercruise, the ability to fly efficiently at supersonic speeds
             without using fuel-consuming afterburners; low observability to adversary
             systems that have the objective of locating and shooting the F-22; and
             integrated avionics to significantly improve the pilot’s battlefield
             awareness.

             The F-22 program began the engineering and manufacturing development
             phase of the acquisition process in 1991. According to the fiscal year 1997
             President’s budget, the Air Force planned to develop the F-22 and build




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                   nine development aircraft, two nonflying structural test articles, and four
                   preproduction aircraft at a cost of about $17.4 billion. The Air Force
                   planned to buy 76 aircraft during the LRIP phase of the program and 362
                   aircraft during the full-rate production phase. The total estimated
                   production cost was about $48 billion.

                   The Assistant Secretary of the Air Force for Acquisition engaged a Joint
                   Estimate Team (JET) because management reviews of the F-22 program
                   indicated potential cost growth. In February 1997, the Under Secretary of
                   Defense for Acquisition and Technology approved the Air Force’s
                   proposed plan to restructure the F-22 program based on the results of the
                   JET’s review. JET concluded that the F-22 engineering and manufacturing
                   development program would require additional time and funding to reduce
                   risk before the F-22 enters production. JET estimated that the development
                   cost would increase by about $1.45 billion.1 Also, JET concluded that F-22
                   production cost could grow by about $13 billion (from $48 billion to
                   $61 billion) unless offset by various cost avoidance actions, identified as
                   tier I and tier II initiatives. These initiatives are being further defined by a
                   study team chartered by the Assistant Secretary of the Air Force for
                   Acquisition. That team is scheduled to report its conclusions in the fall of
                   1997. We have not reviewed the basis for the revised savings estimates that
                   are now being devised by the team.

                   We have issued a number of reports concerning the F-22 fighter program.
                   (See Related GAO Products at the end of this report.) In an April 1995
                   report,2 we recommended that the Secretary of Defense reduce the degree
                   of concurrency between development and production of the F-22 and
                   minimize commitments to production until after successful completion of
                   operational testing.


                   Our reviews of various weapon system acquisitions have shown that initial
Results in Brief   program schedules and cost estimates have historically been optimistic
                   and have not often been achieved. The F-22 program is not an exception.
                   Further, we believe the February 1997 restructuring plan reflects revised
                   cost goals that may be optimistic because (1) the planned reductions in
                   F-22 production unit costs are greater than those experienced by prior



                   1
                    JET estimated the increase at $2.2 billion; however, a decision to delete preproduction aircraft,
                   estimated to cost $706 million, reduced the estimated development cost increase to $1.45 billion.
                   2
                    Tactical Aircraft: Concurrency in Development and Production of F-22 Aircraft Should Be Reduced
                   (GAO/NSIAD-95-59, Apr. 19, 1995).



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fighter programs and (2) actions intended to reduce production costs have
not been fully defined and validated.

Our comparison of the projected reduction in F-22 production unit costs
with the historical unit costs of the F-15, F-16, and F-18 programs indicates
that the F-22 reductions exceed those that have been achieved on these
other programs. Also, to achieve the overall cost avoidance projected by
the Joint Estimate Team, the unit cost of full-rate aircraft must be reduced
by 54 percent from the unit cost of the low-rate initial production aircraft
instead of by 27.9 percent, as projected before the program restructure.
Further, although the Air Force and DOD agree that unit production costs
will increase through 2003, DOD was not convinced that the substantial
manufacturing cost savings projected by the Air Force for fiscal year 2004
and beyond would be achieved. Considerably more information about the
initiatives and their incorporation into a production contract is necessary
before it can be determined that they will produce the desired outcome.

An aspect of cost reduction that has been previously reviewed and should
continue to be considered is the potential savings from reducing F-22
performance requirements. Joint Estimate Team members told us that,
although they considered performance reductions in the study as a means
of reducing costs, and that potential reductions had been considered in at
least a dozen past reviews, no performance reductions were made as a
result of their study. The Defense Science Board indicated in 1995 that the
Air Force should seriously consider reducing F-22 performance
requirements to resolve problems that occur in the program, noting that
rigid adherence to specifications would generally be unproductive and
very costly.

The cost reduction initiatives are not planned to achieve significant net
savings until F-22 full-rate production, now planned to begin in fiscal year
2004. The F-22 cost estimate developed by the Joint Estimate Team and
endorsed by the Air Force recognizes unit cost increases of 40 percent in
F-22 low-rate initial production aircraft through fiscal year 2003. The
increases reflect cost growth in manufacturing F-22s and the cost of
funding projects during low-rate initial production to achieve future cost
reductions. The cost estimate projects substantial program efficiencies
that offset the cost growth during low-rate initial production and achieve
reductions in unit production costs only after the F-22 is in full-rate
production. Thus, achieving the cost reductions, and closely monitoring
them are essential to defining an F-22 funding profile for fiscal year 2004




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                             and beyond (full-rate production) that meets the Air Force’s cost
                             objectives.

                             The program exit criteria that were required before awarding each lot of
                             low-rate initial production aircraft and the first full-rate production
                             contract have been revised as part of the program restructuring.3 Some
                             key measures concerning avionics were added; however, the elements of
                             exit criteria concerning aircraft performance—including maneuverability,
                             combat radius, and supercruise—that were previously considered exit
                             criteria for moving to each subsequent low-rate initial production lot have
                             been deferred until the beginning of full-rate production. Although aircraft
                             performance parameters are reported in the Selected Acquisition Report
                             and other Air Force and DOD reports, we believe specific aircraft
                             performance parameters should be included in the exit criteria for each
                             low-rate initial production lot (1) to maintain visibility of aircraft
                             performance as production rates are accelerated and (2) ensure that
                             adequate progress is being made to fully demonstrate the aircraft’s
                             capabilities. We believe the restructured program should maintain the
                             integrity of the prior exit criteria.


                             Cost growth and schedule delays are among the most prevalent, oldest,
Estimated Costs              and most visible problems associated with weapon systems. Our weapon
Appear Optimistic            system reviews over a 15-year period indicate that it takes longer and costs
                             more to develop and produce weapons than the estimates on which the
                             programs were initially approved.4 Program cost increases on the order of
                             20 to 40 percent have been common on major weapon programs, as have
                             schedule delays of over 2 years.

                             Our review of the Air Force’s restructuring plan for the F-22 program
                             indicates that the projected costs are optimistic. The planned reductions in
                             F-22 production unit costs are greater than achieved on prior fighter
                             programs, and the initiatives to reduce the production costs are not fully
                             developed.


Cost Reduction Initiatives   JET reported that projected costs for the F-22 grew because (1) making the
                             first three of nine development aircraft was taking substantially more

                             3
                              Exit criteria serve as gates that, when successfully passed or exited, demonstrate that the program is
                             on track to achieve its final program goals and should be allowed to continue with additional activities
                             within an acquisition phase or be considered for continuation into the next acquisition phase.
                             4
                              Weapons Acquisition: A Rare Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec. 1992).



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                                            labor than planned, (2) the flight test program did not allow enough time
                                            for solving problems likely to be identified in avionics tests, (3) avionics
                                            integration was expected to take more time than first thought due to slips
                                            in the baseline schedule and loss of experienced software personnel, and
                                            (4) the number of engineering changes on the engine was expected to
                                            increase over earlier projections.

                                            JET also evaluated the cost impact on the production aircraft that could
                                            occur because the cost of the first three development aircraft was
                                            increasing above projections and the test program needed to be extended.
                                            As a result of these changes, production would have to begin later and at a
                                            slower pace, and the cost of production aircraft would reflect the
                                            increased costs of the development aircraft. JET concluded that cost
                                            growth of about $13 billion in the production program (from $48 billion to
                                            $61 billion) was possible unless offset by various cost reduction actions
                                            identified as tier I and tier II initiatives. JET’s recommendations have been
                                            endorsed by the Air Force and essentially approved by the Under
                                            Secretary of Defense for Acquisition and Technology. JET’s
                                            recommendations are listed in appendix I.

                                            JET concluded that savings of $6.6 billion in production costs could be
                                            achieved through the tier I initiatives. Although these techniques have the
                                            potential to reduce costs, the amount of savings that can be achieved from
                                            each will not be known until the initiatives are more specifically defined
                                            and production contracts are negotiated for F-22s. The tier I initiatives
                                            were those defined by JET in some detail, as shown in table 1.

Table 1: Tier I Initiatives and Estimated
Cost Savings                                Dollars in billions
                                            Description                                                                     Savings
                                            Manage subcontracts and material more aggressively                                  $0.5
                                            Initiate multiyear procurement with approval of full-rate
                                              production                                                                          2.2
                                            Reduce warranty cost                                                                  1.0
                                            Initiate producibility enhancements                                                   2.9
                                            Total                                                                               $6.6

                                            Tier II initiatives were less defined and were expected to provide an
                                            additional $6.6 billion in savings. Examples given of additional initiatives
                                            include (1) corporate consolidation opportunities; (2) full contractor depot
                                            support; and (3) others, including foreign military sales, and efficiencies in
                                            dealing with out-of-production parts.



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Planned Reductions in   Based on prior fighter aircraft programs’ experience, we are skeptical the
Production Cost         Air Force can achieve production cost reductions of $13 billion. The
                        planned reductions in F-22 production unit costs are greater than have
                        been experienced by prior fighter programs. Our comparison of the
                        planned reductions in F-22 production unit costs with the historical unit
                        costs of the F-15, F-16, and F-18 programs indicates that the projected
                        reduction in the unit cost of the F-22 exceeds the reductions that have
                        been achieved on these other programs.

                        The Air Force plans to acquire the first full-rate production lot of aircraft
                        (the 71st through the 118th aircraft) at an average unit cost of about
                        18 percent of the cost of the first lot of LRIP aircraft. Prior programs, such
                        as the F-16, have taken advantage of multiyear procurement and other
                        techniques similar to those proposed for the F-22 program and have
                        achieved significant reductions. However, these reductions were not of the
                        magnitude projected for the F-22. For example, the average unit cost of the
                        first full-rate lot of F-18s was about 31 percent of the cost of the first LRIP
                        lot.

                        Figure 1 compares the projected change in F-22 unit procurement cost to
                        the actual changes in unit procurement cost of the F-15, F-16, and F-18 and
                        plots the average procurement cost for each succeeding production lot of
                        each aircraft. None of the other programs achieved the degree of unit cost
                        reductions projected for the F-22. DOD officials said F-22 unit cost
                        reductions are a result of production cost reduction business plans for the
                        tier I and tier II initiatives. Air Force officials noted that an important
                        factor is that no configuration changes, except for safety-of-flight changes,
                        are to be made during LRIP of the first 70 aircraft. However, by not making
                        configuration changes in the first 70 aircraft, the likelihood for cost growth
                        in the first full-rate production lot may increase when the changes are
                        made.




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Figure 1: Change in Average Unit Production Costs Between First and Succeeding Production Aircraft Lots

Percent of first lot cost

100



 80

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 60



 40
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  0
        0       40      80        120    160      200   240      280     320          360    400   440    480
                                                   Number of aircraft units

                                                                           F-22
                                               F-16   F-15 F-18A-D
                                                                        (projected)


AAAA
AAAA
AAAA
AAAA   Average unit cost of first full-rate lot as a percentage of first LRIP lot.
AAAA

                                                 Source: DOD Selected Acquisition Reports.




Cost Reduction Initiatives                       JET’s tier I and tier II initiatives primarily consist of techniques that have
Still Being Developed                            been used on prior programs. Subsequent to JET’s report, the Assistant
                                                 Secretary of the Air Force for Acquisition chartered a team to better define
                                                 JET’s initiatives. The team’s findings are not scheduled to be finalized until
                                                 the fall of 1997. Considerably more information about the initiatives and
                                                 their incorporation into a production contract is necessary before it can be
                                                 determined whether the initiatives will produce the desired outcome.




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                                 Even though tier I and tier II initiatives have not been fully defined, our
                                 prior work, a DOD Cost Analysis Improvement Group (CAIG) report, and
                                 recent developments allow us to make observations about the initiatives
                                 dealing with multiyear procurement, warranty costs, depot maintenance,
                                 subcontract management, and producibility enhancements. In addition,
                                 our discussions with Air Force officials confirmed that tradeoffs in F-22
                                 performance were considered but not recommended by JET.

Multiyear Procurement            JET attributed about $2.9 billion in savings to multiyear procurement,5 but
                                 CAIG estimated $2.4 billion savings based on the recent experience of the
                                 C-17 program. Multiyear procurement has been a source of significant
                                 savings in the past and could provide savings for the F-22 program. A
                                 major portion of the savings from multiyear procurement typically results
                                 from the lower prices on economic purchase orders from vendors or
                                 subcontractors.

Reducing Warranty Cost           The amount of cost reductions that can be achieved by implementing a
                                 different warranty clause is unclear. JET concluded that savings of $1
                                 billion could be achieved. However, the contractors’ more recent estimate
                                 of the savings available is about $0.7 billion, which seems more realistic.
                                 By applying the average cost of warranties we identified in past work,
                                 about 0.87 percent of the total contract value,6 we believe that about
                                 $400 million to $500 million in costs could be avoided if the warranty
                                 clause were eliminated. Air Force officials explained that they do not
                                 intend to eliminate the warranty and have provided about $200 million in
                                 the estimate of the cost for a warranty that is more limited, but complies
                                 with statutes. Thus, the projected $1 billion in savings is not likely to
                                 occur.

Depot Maintenance                JET envisioned that, by allowing for full depot maintenance by the
                                 contractor, DOD could avoid $2.5 billion in acquisition costs. According to
                                 Air Force officials, contractor depot maintenance is no longer being
                                 considered a cost reduction initiative. Therefore, the potential for the JET
                                 initiatives to achieve $13 billion in cost reductions may be more difficult.

Potential Overlap of Estimated   Initiatives regarding multiyear procurement, more aggressive management
Savings                          of subcontracts, and producibility enhancements all have applicability to
                                 subcontractors. A significant portion of multiyear procurement savings on
                                 other programs have been achieved by acquiring products from

                                 5
                                  Multiyear procurement, when authorized, uses one contract to procure up to 5 years of requirements
                                 for a major weapon system and its components.
                                 6
                                  Weapons Acquisition: Warranty Law Should Be Repealed (GAO/NSIAD-96-88, June 28, 1996).



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                                subcontractors on an economic order quantity basis. Further, to achieve
                                savings of the magnitude projected, producibility enhancements will
                                involve subcontractors. More aggressive management of subcontracts
                                overlaps both of these initiatives. Because the initiatives were not well
                                defined by JET, we are uncertain whether the identified savings are
                                counted more than once.

Reducing Aircraft Performance   Although JET members told us they considered performance reductions in
                                their study as a means of reducing costs, no such reductions were made.
                                The Defense Science Board, in a 1995 review of the concurrency and risk
                                in the F-22 program concluded that such reductions may be appropriate if
                                problems are encountered in the program. The Board concluded in
                                April 1995 that the “. . . best approach to handling problems that do arise is
                                to seriously consider accepting some reduced F-22 performance, slip in
                                the schedule, or some combination of both.” The Board also stated that
                                F-22 performance in many areas, if it fell short of that specified, would still
                                represent a major increase in military capability, and that rigid adherence
                                to the current specifications and goals would generally be unproductive
                                and very costly.


                                The restructuring plan recognized substantial cost growth in the LRIP phase
Benefits of Initiatives         of the program. The plan also projected substantial cost reductions in the
Are Not Planned to Be           full-rate production phase of the program that will offset the earlier cost
Realized Until After            growth and investment in cost reduction techniques.

Fiscal Year 2003
Cost Growth in LRIP             As a result of restructuring, the average estimated unit cost of LRIP aircraft
                                increased from $142.6 million to $200.8 million, or about 40 percent. Table
                                2 shows a reduction in the number of LRIP aircraft from 76 to 70 aircraft
                                but an increase of $3.2 billion in the estimated cost of LRIP. Before
                                restructuring, the Air Force estimated that 76 LRIP aircraft could be
                                purchased for $10.8 billion. With the February 1997 restructured program,
                                the Air Force estimated that 70 aircraft could be purchased at $14 billion.
                                The restructuring plan eliminated the preproduction aircraft and changed
                                the production plan for LRIP, as shown in table 2.




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Table 2: Planned LRIP Aircraft
Quantities and Costs Before and After    Then-year dollars in millions
Restructuring                                                               Fiscal year                               LRIP      LRIP       Unit
                                         Estimate            1999        2000        2001     2002        2003        total     cost       cost
                                         Before
                                         restructure             4        12           24         36           0        76    $10,837    $142.6
                                         After
                                         restructure             2         6           12         20           30       70     14,057     200.8
                                         Difference             –2        –6         –12       –16             30       –6     $3,220     $58.2



Cost Reductions Planned                  Some savings from tier I and tier II initiatives are expected to begin during
for Full-Rate Production                 LRIP. However, the costs of investment to implement the initiatives are

Phase                                    expected to exceed any savings achieved during LRIP. Most savings are not
                                         planned to be achieved until full-rate production that is scheduled to begin
                                         in 2004. As shown in table 3, the unit price of LRIP F-22s before
                                         restructuring was $142.6 million, and the unit price of full-rate aircraft was
                                         $102.8 million—a decrease of 27.9 percent. After restructuring the program
                                         and implementing the JET initiatives, the unit price of LRIP aircraft is
                                         projected to be $200.8 million, and the unit price of full-rate aircraft is
                                         projected to be $92.4 million—a decrease of 54 percent. Therefore, to
                                         achieve the overall cost avoidance projected by JET, the unit cost of
                                         full-rate aircraft must be reduced by 54 percent from the unit cost of the
                                         LRIP aircraft instead of by 27.9 percent, as projected before the program
                                         restructure.

Table 3: Comparison of DOD’s
Projected Unit Prices Before and After                                                      Production
Restructuring                                                                                                                        Unit price
                                                                                Low-rate                  Full-rate             decrease from
                                         Estimates                        Units       Unit cost        Units    Unit cost      LRIP to full-rate
                                         Before restructuring                   76      $142.6          362         $102.8                 27.9%
                                         Restructured without
                                         initiatives                            70      $200.3          368         $128.2                 36.0%
                                         Restructured with initiatives          70      $200.8          368         $ 92.4                 54.0%

                                         In December 1996, the Air Force, Lockheed, and Pratt & Whitney entered
                                         into a memorandum of agreement that summarizes their intentions for
                                         implementing the restructured program. The memorandum of agreement
                                         describes a contract strategy requiring negotiation of a target price curve
                                         that is to permit production of 438 F-22s at a cost of about $48 billion. In
                                         February 1997, the Under Secretary of Defense for Acquisition and
                                         Technology, in approving the Air Force’s plan to restructure the F-22




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                            program, required the Air Force to clarify the contractual implications of
                            the memorandum of understanding.

                            According to DOD officials, six factors are critical to maintaining the
                            production cost at the planned level:

                        •   maintaining stable funding throughout the production phase of the
                            program,
                        •   procuring a total of 438 aircraft in 13 lots;
                        •   attaining a production rate of 48 aircraft per year in fiscal year 2004;
                        •   achieving cost savings at the levels estimated by JET;
                        •   maintaining a single configuration for aircraft produced through the LRIP
                            program, except for changes for safety reasons; and
                        •   negotiating a target price curve that is tied to a production lot profile as
                            recommended by JET and endorsed by the Air Force.

                            In view of the announced reduction of F-22 production quantities from
                            438 to 339, it appears that the contract strategy may require change.

                            CAIG also evaluated the cost of the F-22 program and concluded in
                            March 1997 that the production cost could approach $64.4 billion—about
                            $3 billion higher than the Air Force’s estimate. However, CAIG was not
                            convinced that the JET-identified initiatives would achieve $13 billion in
                            cost savings and accepted as valid only an estimated $2.4 billion of
                            savings—those associated with multiyear procurement. That savings
                            lowered CAIG’s estimate to about $62 billion for production compared with
                            the Air Force’s $48 billion estimated cost after considering the
                            JET-identified initiatives.



                            The program exit criteria that were required to be met before awarding
Revised Exit Criteria       contracts for F-22 production aircraft have been revised in the
Resulted From               restructured program. In 1991, when approving the F-22 program to begin
Restructuring               the engineering and manufacturing development phase, the Under
                            Secretary of Defense for Acquisition required the Air Force to establish
                            exit criteria that needed to be met before awarding production contracts.
                            The Air Force established exit criteria for each lot of LRIP aircraft and the
                            first lot of full-rate production aircraft. As part of the program
                            restructuring, the Air Force revised these criteria, increasing the emphasis
                            on avionics but removing criteria concerning aircraft performance.




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                     In the previous criteria, aircraft performance parameters for combat
                     radius, maneuverability, and supercruise were required to be validated by
                     analysis, test, or demonstration before contracts for lot 1 and subsequent
                     production lots could be awarded. Air Force and DOD officials noted that
                     key aircraft performance parameters are routinely reported in periodic Air
                     Force and DOD reports, such as the Selected Acquisition Report, to
                     acquisition and other executives. Accordingly, the officials said that
                     reporting the performance parameters as part of the exit criteria is
                     duplicative and not encouraged by DOD directives.

                     The revised exit criteria include no specific requirements regarding
                     aircraft performance as the program advances from one LRIP lot to the
                     next. Although we recognize that reporting the key performance
                     parameters occurs through other reports, we believe aircraft performance
                     should be included as exit criteria because analysis and demonstration of
                     aircraft performance are important factors in determining whether to
                     proceed to the next production lot. We believe exit criteria for aircraft
                     performance equivalent to those established when the program entered
                     engineering and manufacturing development are still valid and should be
                     retained in the restructured program.


                     Since the Air Force plans to request approval for the first production lot of
Recommendations      F-22 aircraft in fiscal year 1999, we recommend that the Secretary of
                     Defense, as part of the budget justification for fiscal year 1999, provide
                     financial plans and cost estimates that clearly identify the basis for cost
                     savings initiatives that have been approved for the program at that time.
                     Because of the potential for cost growth in the F-22 program, we also
                     recommend that the Secretary reconsider the potential savings that can be
                     achieved by reducing the performance requirements of the F-22, as
                     previously suggested by the Defense Science Board. Finally, we
                     recommend that the Under Secretary of Defense for Acquisition and
                     Technology reevaluate the exit criteria for the F-22 to ensure that the
                     integrity of the prior criteria are maintained.


                     In commenting on a draft of this report, DOD indicated that our
Agency Comments      recommendations were appropriate areas for consideration due to the
and Our Evaluation   restructuring and reduction of the F-22 program, as called for in the
                     May 1997 Quadrennial Defense Review. DOD acknowledged the importance
                     of updating the production cost estimate and incorporating information
                     from restructuring activities and program reductions into the budget



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              process as quickly as practical. DOD also stated that it would make every
              effort to complete the detailed F-22 costing data in time to influence the
              fiscal year 1999 President’s budget. In addition, DOD said that it does not
              believe that a substantial reduction in F-22 required performance is
              currently justified, but it indicated that cost-effectiveness analyses will be
              done to determine whether it is appropriate to lower requirements that are
              not met during testing. DOD acknowledged that certain aircraft
              performance measures had been deleted from exit criteria. However, DOD
              stated that the exit criteria had been simplified and reordered to conform
              to the restructured schedule but not at the expense of either the quality or
              difficulty of the events and performance levels that determine whether the
              program should be allowed to proceed to the next acquisition phase.
              Moreover, DOD indicated that the new criteria related to the demonstration
              of avionics maturity had been added.

              After considering DOD’s comments, we believe our recommendation is still
              valid because the original exit criteria required intermediate validation of
              the aircraft performance parameters before award of each LRIP lot,
              whereas the revised exit criteria deleted the intermediate validation
              requirement and only considered the comparable requirement to enter
              full-rate production. However, a number of aircraft will have already been
              procured by that time. DOD’s comments are reprinted in appendix II. DOD
              also provided technical corrections to the report, which we have
              incorporated where appropriate.


              We reviewed and analyzed available reports, briefings, documents, and
Scope and     records and interviewed officials at the F-22 program office,
Methodology   Wright-Patterson Air Force Base, Ohio; Air Force Headquarters, and the
              Office of the Under Secretary of Defense for Acquisition and Technology,
              Washington, D.C. To gauge the overall viability of the Air Force’s
              restructuring plans, we compared the unit costs of the F-22 before the
              restructuring with the unit costs after restructuring. We also compared the
              unit cost reductions planned for the F-22 with the historical cost
              reductions experienced on the F-15, F-16, and F-18 fighter aircraft
              programs. We also used our prior reports and those of other organizations
              to provide a historical and contextual framework for evaluating the Air
              Force’s planned cost reduction initiatives. We reviewed a Defense Science
              Board report regarding concurrency and risk in the F-22 program and
              reports on F-22 restructuring by CAIG and the Congressional Budget Office.




              Page 13                                      GAO/NSIAD-97-156 F-22 Restructuring
B-276815




We performed our review between March and May 1997 in accordance
with generally accepted government auditing standards.


As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 5 days from its
issue date. At that time, we will send copies of this report to the Chairmen
and Ranking Minority Members of appropriate congressional committees;
the Secretaries of Defense and the Air Force; the Director, Office of
Management and Budget; and other interested parties.

Please contact me at (202) 512-4841 if you or your staff have any questions
concerning this report. Major contributors to this report are listed in
appendix III.

Sincerely yours,




Louis J. Rodrigues
Director, Defense Acquisitions Issues




Page 14                                      GAO/NSIAD-97-156 F-22 Restructuring
Page 15   GAO/NSIAD-97-156 F-22 Restructuring
Contents



Letter                                                                                             1


Appendix I                                                                                        18

Recommendations of
the Joint Estimate
Team
Appendix II                                                                                       19

Comments From the
Department of
Defense
Appendix III                                                                                      25

Major Contributors to
This Report
Related GAO Products                                                                              28


Tables                  Table 1: Tier I Initiatives and Estimated Cost Savings                     5
                        Table 2: Planned LRIP Aircraft Quantities and Costs Before and            10
                          After Restructuring
                        Table 3: Comparison of DOD’s Projected Unit Prices Before and             10
                          After Restructuring

Figure                  Figure 1: Change in Average Unit Production Costs Between First            7
                          and Succeeding Production Aircraft Lots




                        Abbreviations

                        CAIG      Cost Analysis Improvement Group
                        DOD       Department of Defense
                        JET       Joint Estimate Team
                        LRIP      low-rate initial production


                        Page 16                                   GAO/NSIAD-97-156 F-22 Restructuring
Page 17   GAO/NSIAD-97-156 F-22 Restructuring
Appendix I

Recommendations of the Joint Estimate
Team

                 The Joint Estimate Team recommended that the Air Force

             •   slow the manufacturing of development aircraft to ensure an efficient
                 transition from development to low-rate initial production;
             •   increase the time available for avionics software development and
                 integration;
             •   develop a more effective avionics ground test capability;
             •   implement revised avionics flight test processes;
             •   extend the flight test schedule by 9 months to allow additional time to
                 identify, analyze, and resolve avionics anomalies;
             •   extend the development program by 12 months to accommodate a
                 9-month flight test extension;
             •   finish development of a baseline capability before beginning dedicated
                 initial operational test and evaluation;
             •   delete the plans to produce preproduction aircraft and conduct dedicated
                 initial operational test and evaluation with two refurbished development
                 aircraft and the first two production aircraft;
             •   delay initiation of full-rate production by 10 months;
             •   slow the rates of low-rate initial production to make funds available for
                 development activities and increase system maturity; and
             •   deliver a mature avionics capability before initial operational capability
                 planned for November 2004.




                 Page 18                                     GAO/NSIAD-97-156 F-22 Restructuring
Appendix II

Comments From the Department of Defense




              Page 19        GAO/NSIAD-97-156 F-22 Restructuring
Appendix II
Comments From the Department of Defense




Page 20                                   GAO/NSIAD-97-156 F-22 Restructuring
                        Appendix II
                        Comments From the Department of Defense




Now on p. 11.




Now on pp. 11 and 12.




                        Page 21                                   GAO/NSIAD-97-156 F-22 Restructuring
                Appendix II
                Comments From the Department of Defense




Now on p. 12.




                Page 22                                   GAO/NSIAD-97-156 F-22 Restructuring
Appendix II
Comments From the Department of Defense




Page 23                                   GAO/NSIAD-97-156 F-22 Restructuring
Appendix II
Comments From the Department of Defense




Page 24                                   GAO/NSIAD-97-156 F-22 Restructuring
Appendix III

Major Contributors to This Report


                        David E. Cooper
National Security and   Robert D. Murphy
International Affairs   David B. Best
Division, Washington,
D.C.
                        Leonard L. Benson
Chicago Field Office    Edward R. Browning
                        Don M. Springman




                        Page 25              GAO/NSIAD-97-156 F-22 Restructuring
Page 26   GAO/NSIAD-97-156 F-22 Restructuring
Page 27   GAO/NSIAD-97-156 F-22 Restructuring
Related GAO Products


              Defense Aircraft Investments: Major Program Commitments Based on
              Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997).

              F-22 Restructuring (GAO/NSIAD-97-100R, Feb. 28, 1997).

              Combat Air Power: Joint Assessment of Air Superiority Can Be Improved
              (GAO/NSIAD-97-77, Feb. 26, 1997).

              Combat Air Power: Joint Mission Assessments Needed Before Making
              Program and Budget Decisions (GAO/NSIAD-96-177, Sept. 20, 1996).

              Tactical Aircraft: Concurrency in Development and Production of F-22
              Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995).

              Air Force F-22 Embedded Computers (GAO/AIMD-94-177R, Sept. 20, 1994).

              Tactical Aircraft: F-15 Replacement Issues (GAO-T/NSIAD-94-176, May 5,
              1994).

              Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned
              (GAO/NSIAD-94-118, Mar. 25, 1994).

              Aircraft Development: Reasons for Recent Cost Growth in the Advanced
              Tactical Fighter Program (GAO/NSIAD-91-138, Feb. 1, 1991).

              Aircraft Development: Navy’s Participation in Air Force’s Advanced
              Tactical Fighter Program (GAO/NSIAD-90-54, Mar. 7, 1990).

              Aircraft Development: The Advanced Tactical Fighter’s Costs, Schedule,
              and Performance Goals (GAO/NSIAD-88-76, Jan. 13, 1988).

              Aircraft Procurement: Status and Cost of Air Force Fighter Procurement
              (GAO/NSIAD-87-121, Apr. 14, 1987).

              DOD Acquisition: Case Study of the Air Force Advanced Tactical Fighter
              Program (GAO/NSIAD-86-45S-12, Aug. 25, 1986).




(707246)      Page 28                                       GAO/NSIAD-97-156 F-22 Restructuring
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