oversight

U.S.-Japan Fighter Aircraft: Agreement on F-2 Production

Published by the Government Accountability Office on 1997-02-11.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




February 1997
                  U.S.-JAPAN FIGHTER
                  AIRCRAFT
                  Agreement on F-2
                  Production




GAO/NSIAD-97-76
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-272541

      February 11, 1997

      The Honorable Strom Thurmond
      President Pro Tempore
      United States Senate

      The Honorable Newt Gingrich
      Speaker of the House of Representatives

      The Honorable Richard Gephardt
      Minority Leader
      House of Representatives

      The FS-X fighter aircraft program, now the F-2,1 is the first U.S.-Japan joint
      development and production of a weapon system, marking a significant
      departure from previous licensed production agreements between the
      United States and Japan. The early stages of the program were
      characterized by strong congressional concerns regarding the terms of the
      codevelopment agreements. In particular, Congress was concerned about
      the enhancement of Japan’s aerospace industry through the transfers of
      U.S. technology to Japan, and the value of Japanese technologies to be
      transferred to the United States.

      This is an unclassified version of our 1997 classified report. This report
      examines the status of the F-2 fighter aircraft program as development
      nears completion and provides information on the agreements signed on
      July 30, 1996, by the two countries for the production phase of the
      program. Specifically, we address the following issues: (1) the proportion
      of production work that will be done in the United States and how the U.S.
      workshare will be calculated and monitored, (2) the status of technology
      transfers from Japan to the United States and whether these technologies
      are of interest to the U.S. government and industry, and (3) the program’s
      potential contributions to Japan’s future aerospace plans.

      This report responds to a requirement that we periodically review the F-2
      program. This requirement is part of the conference report for the fiscal
      year 1990 appropriations act for the Departments of Commerce, Justice,
      and State; the Judiciary; and related agencies. It also responds to a request
      from the House Minority Leader that we examine aspects of the
      production phase agreements signed by the two countries.

      1
       The production phase agreements renamed the FS-X program to the F-2 program. For clarity and
      consistency, we refer to the program as the F-2 throughout the report, regardless of which program
      phase is discussed.



      Page 1                                             GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
             B-272541




             In the mid-1980s, Japan was interested in developing an indigenous fighter
Background   aircraft to replace its aging F-1 fighter. On the other hand, the United
             States preferred that Japan purchase an off-the-shelf U.S. fighter. As a
             compromise, in November 1988, the United States and Japan agreed to
             cooperatively develop a fighter aircraft, with all funding to be provided by
             the government of Japan. The development phase,2 which began in 1989
             and will end in the year 2000, included the development and manufacture
             of six prototype aircraft incorporating major Japanese modifications to the
             F-16C/D Block 40.3 According to Department of Defense (DOD) officials,
             the F-2 program was expected to enhance the bilateral security
             relationship with Japan. In addition, the United States was to receive free
             and automatic flowback of improvements to F-16 technologies and have
             access to Japanese indigenous technologies developed for this program.
             Also, U.S. industry was to receive 40 percent of the development work.

             The F-2 is a multi-role, single engine, fighter aircraft based on the F-16C/D
             Block 40 and tailored to Japan’s requirements. (See fig. 1.) The F-16 and
             the F-2 are both multi-role fighters with air-to-air and air-to-surface
             capability, but the F-2 places more emphasis on the air-to-surface
             capability because its primary mission is sea-lane protection. Since one of
             the F-2’s operational requirements included extended range and shorter
             take-off and landing capability, Japan selected the co-cured composite
             wing to maximize strength while minimizing weight. The F-2 wings are
             about 25 percent larger than the F-16’s, increasing fuel capacity and
             allowing for more weapon stores stations—11 as compared to 9 on the
             F-16. Also, the F-2’s fuselage has been stretched to increase fuel capacity
             and accommodate the larger wings.




             2
              The development program has been implemented almost exclusively through commercial contracts.
             Mitsubishi Heavy Industries was the prime contractor; other Japanese contractors included Fuji Heavy
             Industries, Kawasaki Heavy Industries, and Ishikawajima-Harima Heavy Industries. Lockheed Martin
             and General Electric were the principal U.S subcontractors.
             3
              The block number refers to a specific stage of the F-16’s development.



             Page 2                                              GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                                  B-272541




Figure 1: The F-2 Prototype




                                  Shortly after the codevelopment agreements were signed, Congress
                                  became concerned about the merits of the agreements, especially the
                                  transfers of U.S. aerospace technology to Japan and the contributions this
                                  would make to the development of Japan’s aerospace industry. Congress
                                  was also concerned about U.S. access to and the potential value of
                                  Japanese-developed technologies. As a result, we were tasked to
                                  periodically review the status of the program. Since November 1989, we
                                  have issued a number of reports dealing with the F-2 program.4 In general,
                                  these reports concluded that during the development stage:

                              •   the United States was adequately controlling the release of F-16 related
                                  technical data to Japan, but U.S. government agencies were not adequately
                                  sharing licensing information;
                              •   the value of technology transfers from Japan to the United States was
                                  uncertain; and
                              •   the program had helped to enhance Japan’s aerospace industry.




                                  4
                                   See the list of our related products at the end of this report.



                                  Page 3                                                 GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                   B-272541




                   Our August 1995 report5 noted that program officials believed that the
                   United States and Japan should clearly define U.S. workshare in the
                   production agreement and include a specific list of items to be
                   manufactured by U.S. industry.

                   During the development phase, the United States provided the F-16
                   technical data package on which the F-2 design was based and U.S.
                   industry received about 40 percent of development phase work
                   (approximately $1.2 billion).

                   In 1995, Japan conducted the initial flight of the first prototype aircraft and
                   the Japanese cabinet approved the production of 130 F-2 aircraft over the
                   next 15 years at an average estimated procurement cost of about
                   $80 million per aircraft.6 Mitsubishi officially turned the first prototype
                   over to the Japan Defense Agency in March 1996 to begin government
                   testing. In May 1996, the Japanese parliament approved about $1.3 billion
                   for production of 11 aircraft commencing in fiscal year 1996.7 Finally, on
                   July 30, 1996, the United States and Japan signed a memorandum of
                   understanding to produce 130 F-2 aircraft for Japan’s Air Self Defense
                   Force.



                   Under the F-2 production agreements, U.S. industry is expected to receive
Results in Brief   approximately 40-percent workshare, currently estimated at $4.1 billion if
                   the Japanese fully implement the planned production of 130 aircraft. The
                   agreements specify the items to be procured by Japan from U.S. industry,
                   which provide for a 40-percent workshare based on estimates of the
                   production costs at the time the agreements were signed. A constant
                   exchange rate of 110 yen to the dollar was used to estimate the value of
                   the U.S. workshare and this rate will remain constant throughout the life
                   of the program.




                   5
                   U.S.-Japan Cooperative Development: Progress on the FS-X Program Enhances Japanese Aerospace
                   Capabilities (GAO/NSIAD-95-145, Aug. 11, 1995).
                   6
                    The $80 million per aircraft average is in constant 1996 dollars at 110 yen per dollar. Japan Defense
                   Agency budgets will be slightly higher as they will include Japanese taxes and will reflect adjustments
                   for inflation. Japan is funding the entire F-2 program at a cost of about $14 billion, including both
                   development and production phases.
                   7
                    Japan’s fiscal year 1996 began on April 1, 1996.



                   Page 4                                              GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
B-272541




The U.S. Air Force plans to verify that contracts for the items identified in
the production agreements are awarded to U.S. companies.8 The value of
payment amounts will not be tracked and a workshare percentage will no
longer be recalculated based on actual payment amounts as had occurred
during the development phase. As a result, the Air Force will not have the
means to determine whether this approach in fact enabled U.S. companies
to receive approximately 40 percent of the production work over the
course of the program.

Technology transfers from Japan to the United States have generally been
in accordance with the development phase agreements, but some issues
remain unresolved. In 1993, Japan requested that 12 items be recategorized
as Japanese indigenous technologies (i.e., not essentially derived from
F-16 technical data). The United States is to receive free and automatic
flowback of F-2 technologies that are derived from U.S. technical data
while access to non-derived or indigenous technologies is more limited. In
1994, the United States agreed to reclassify 4 of the 12 items as
non-derived or Japanese indigenous technologies. However, at the time of
this review, the United States and Japan had not resolved the classification
issue. As we reported in August 1995, while this issue is unresolved, the
United States is not receiving free and automatic access to these
technologies.

The United States conducted several visits to explore the potential
benefits of F-2 technologies. Two technologies that were initially of
interest to the U.S. Air Force and to DOD contractors—the co-cured
composite wing and the active phased array radar—are now generally
considered too costly to produce. However, Lockheed officials indicated
that tooling techniques from the F-2 program are being applied to the Joint
Advanced Strike Technology program.

The F-2 program enhances Japan’s military aircraft industry by improving
its overall systems integration capability, according to experts. However,
Japan’s exports of military technology and equipment continue to be
constrained by the country’s policy prohibiting exports of weapon systems
or exclusively military technology.




8
 The agreements include the Memorandum of Understanding, the Implementing Arrangement to the
Memorandum of Understanding, the Exchange of Notes, and the Memorandum of Implementation for
the Transfer of Japanese Military Technologies.



Page 5                                         GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                            B-272541




                            The F-2 production agreements specify that U.S. industry is to receive
U.S. Workshare Is           approximately 40-percent workshare. If the Japanese fully implement the
Expected to Be              program,9 the U.S. workshare will be an estimated $4.1 billion over the life
Approximately 40            of the program. The agreements identify the contents of U.S. workshare
                            and provide for a 40-percent workshare based on estimates of production
Percent                     costs at the time the agreements were signed.

                            A constant exchange rate of 110 yen to the dollar was used to avoid the
                            effect of exchange rate fluctuations on the respective workshares.
                            According to DOD officials, unlike during the development phase, U.S.
                            workshare will not be recalculated throughout the program. These new
                            provisions will change the method of verifying U.S. workshare from
                            checking payments to U.S. companies to checking that U.S. companies
                            have received contracts for the items that constitute U.S. workshare. The
                            value of contracts and actual payments to U.S. companies will not be
                            tracked.


Production Cost Estimates   The production agreements provide that U.S. industry will receive
Provide Basis for U.S.      approximately 40 percent of the total value of production over the life of
Workshare                   the F-2 program. The total value of production for 130 aircraft consists of
                            the flyaway aircraft costs plus initial spares, less certain agreed to
                            deductions. The Japan Defense Agency estimates the total value of
                            production will be about $10.3 billion. This total does not include the
                            purchase of follow-on spare parts, which Japan is expected to purchase
                            from U.S. industry.

                            Actual program costs and U.S. revenue are likely to vary from current
                            estimates. The 40-percent U.S. workshare is based on the Japan Defense
                            Agency’s estimates of total production costs, adjusted for inflation. The
                            Japan Defense Agency obtained inputs from prime contractor Mitsubishi
                            and other Japanese companies when developing its estimated production
                            budget. These companies’ estimates were based on the development phase
                            experience and incorporated cost estimates from U.S. companies,
                            according to DOD officials. U.S. Air Force officials estimated U.S.
                            workshare by obtaining data from U.S. companies and extrapolating from
                            experience with the F-16 program.




                            9
                             In constant 1996 dollars converted at an exchange rate of 110 yen to the dollar.



                            Page 6                                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                           B-272541




Production Phase           During the development phase, U.S. workshare was vulnerable to
Workshare Calculation      exchange rate fluctuations. If the yen appreciated against the dollar, thus
Methodology Differs From   requiring fewer yen to pay for each dollar, more work would be required
                           for U.S. companies to achieve a 40-percent workshare.10 Conversely, if the
the Development Phase      yen depreciated against the dollar, work would have to shift from U.S. to
                           Japanese companies to maintain the 40/60 workshare split because more
                           yen would be required to meet payments to U.S. companies.

                           The semi-annual workshare recalculations showed changes in the
                           percentage of U.S. workshare as the development phase progressed. For
                           example, in 1994, U.S. workshare was calculated to be 42.4 percent; 1 year
                           later, U.S. workshare decreased to 40.7 percent as companies were paid at
                           a lower yen/dollar rate. U.S. and Japanese officials attribute this change
                           primarily to exchange rate fluctuations, which were significant during the
                           development phase. From 1988 to 1995, the average annual exchange rate
                           ranged between 145 yen to the dollar and 88 yen to the dollar.

                           During government-to-government negotiations for the production phase,
                           workshare calculation methodology was a major issue. A constant
                           exchange rate of 110 yen to the dollar was used to estimate the value of
                           U.S. workshare. The constant exchange rate for the production phase will
                           be useful not only in establishing U.S. workshare at the beginning of the
                           program, but also in the event of changes during the course of the
                           program. For example, if U.S. workshare were to be adjusted in response
                           to changes in F-2 configuration items, the 110 yen to the dollar exchange
                           rate would be used to factor in these adjustments to U.S. workshare.

                           The production phase negotiations also resulted in identification of the
                           items that will constitute U.S. workshare. Our August 1995 report noted
                           that U.S. program officials favored defining the elements that comprise
                           production phase workshare to avoid delays, confusion, and subsequent
                           disagreements.

                           In conjunction with the constant 110 yen to the dollar exchange rate,
                           identification of the items to be produced by U.S. suppliers helps stabilize
                           U.S. workshare for the life of the program. This will avoid the risk of
                           shifting work from U.S. to Japanese companies, according to the DOD
                           officials. Shifting work is not practical because of its potential impact on
                           cost and schedule.



                           10
                            For example, a $100,000 contract would equal 13 million yen at an exchange of 130 yen to the dollar,
                           whereas it would equal 11 million yen at an exchange rate of 110 yen to the dollar.



                           Page 7                                              GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                        B-272541




Production Workshare    The removal of the effects of exchange rate fluctuations on workshare and
Monitoring Procedures   identification of specific work to be performed by U.S. companies have
Also Changed From the   resulted in changes to the methodology for verifying U.S. workshare from
                        that used during the development phase. During development, U.S.
Development Phase       workshare was recalculated and reported to the Technical Steering
                        Committee twice each year by the Japan Defense Agency. The U.S. Air
                        Force then verified the workshare data by contacting U.S. companies to
                        determine the value of F-2 contract payments. According to one Air Force
                        official, verifying U.S. workshare was time consuming and company
                        reporting of Japanese payments for the purpose of verifying workshare is
                        voluntary.

                        For the production phase, U.S. workshare will be monitored through
                        verifying that Japan has awarded contracts to U.S. companies for the items
                        agreed to in the production agreements, rather than through verifying
                        actual payments. Monitoring implementation of the workshare agreement
                        will be the responsibility of a joint production coordination group, the
                        successor to the Technical Steering Committee. However, the exact
                        responsibilities of this committee have yet to be determined.

                        DOD  intends to ensure that agreed parts and items are indeed purchased
                        from U.S. companies. The Air Force will periodically contact U.S.
                        companies to verify that the contracts they receive for F-2 production are
                        in fact consistent with the production agreements. However, the value of
                        the contracts will not be tracked and a workshare percentage will not be
                        calculated based on actual payments. As a result, the Air Force will not
                        have the means to determine whether this approach in fact enabled U.S.
                        companies to receive approximately 40 percent of the production work
                        over the course of the program.


U.S. Industry Expects   U.S. workshare, currently expected to be about $4.1 billion over the life of
Revenue of About        the program,11 is represented by the flow of revenue to U.S. companies,
$4.1 Billion            rather than the percentage of actual work performed. Thus, U.S.
                        workshare will include parts and components manufactured in the United
                        States as well as royalties and licensing fees paid by Japan to U.S.
                        companies. Royalties and licensing fees account for about 5.2 percent of
                        the $4.1 billion U.S. workshare. Figure 2 shows the major components of
                        U.S. workshare.



                        11
                          In constant 1996 dollars converted at an exchange rate of 110 yen to the dollar.



                        Page 8                                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                                        B-272541




Figure 2: Major Components of U.S. Workshare




                                                                                                      Engine*



                                                   Aft Fuselage
                                                    Structure


        Leading Edge
            Flap




                                                                                                                 Upper Skin



                                                                                                                Left-Hand
                                                                                                                Wing Box**

                                                                                        Leading Edge Flap




                                        Notes: * Phased-in licensing arrangement
                                                ** 8 of every 10 left-hand wings

                                        Source: Defense Security Assistance Agency.




                                        Lockheed Martin Tactical Aircraft Systems and General Electric Aircraft
                                        Engines are expected to receive about 70 percent of the U.S. workshare




                                        Page 9                                        GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                    B-272541




                    (excluding initial spare parts the two companies will produce). About 200
                    other U.S. companies will also receive F-2 contracts directly from Japan,
                    as specified in the production agreements. Lockheed Martin will produce
                    80 percent of the left-hand wings, as well as the aft fuselage, leading edge
                    flaps, avionics support equipment, and stores management set.12 The
                    percentage of left-hand wings Lockheed Martin will produce is an increase
                    over the 57 percent produced during the development phase.

                    General Electric is entering into a licensed production arrangement with
                    Japanese engine manufacturer Ishikawajima-Harima Heavy Industries.
                    General Electric will allow Ishikawajima-Harima to produce up to
                    76 percent of the engine under license in a phased arrangement. Over the
                    life of the program, Ishikawajima-Harima’s licensed production of the
                    engine will average 60 percent. However, in accordance with U.S.
                    restrictions on transfers of leading edge technologies, critical engine
                    technologies are not being licensed to Japan as part of this program.13

                    Workshare will be accounted for by contracts awarded to the major
                    subcontractors, such as Lockheed Martin and General Electric, and to the
                    200 or so smaller U.S. companies that will contract directly with Japan. We
                    have identified several parts and components that will be procured from
                    third countries; however, these parts account for less than 1 percent of
                    U.S. workshare. For example, Lockheed will buy airframe harnesses from
                    Mexico at an estimated total cost of $6 million, or about 0.15 percent of
                    U.S. workshare. Similarly, General Electric will purchase certain parts
                    from its subcontractors in Canada, the Netherlands, and Turkey at an
                    estimated total cost of about $19 million, or about 0.5 percent of U.S.
                    workshare. These are parts that U.S. contractors typically buy from third
                    countries to build these engines for the U.S. Air Force.


                    Transfers of technology from Japan to the United States have been in
Transfers of        accordance with the development agreements but some issues remain
Technology From     unresolved. In 1993, Japan requested that 12 items be recategorized as
Japan Improve but   Japanese indigenous technologies. The United States is to receive free and
                    automatic flowback of F-2 technologies that are derived from U.S.
Some Unresolved     technical data. In 1994, the United States agreed to reclassify 4 of the
Issues Remain       12 items as non-derived or Japanese indigenous technologies. However, as

                    12
                     The stores management set is a computer system that contains weapon delivery software. This
                    system interacts and communicates with all weapon systems on the aircraft.
                    13
                      The engine licensed production rate for the Japanese side is approximately 60 percent on average
                    through the F-2 production period, and reaching up to 76 percent at the end of the F-2 production
                    period.



                    Page 10                                            GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                           B-272541




                           our August 1995 report indicated, while this issue is unresolved, the United
                           States is not receiving free and automatic access to these technologies.14

                           We also stated in our August 1995 report that the U.S. Department of
                           Commerce wanted to develop opportunities for U.S. companies interested
                           in Japanese FS-X technology by organizing industry visits to Japan to
                           examine non-derived technologies. Since then, the Commerce Department
                           and DOD have sponsored 17 U.S. government and industry visits. Industry
                           participants reported that they generally benefited from learning about
                           Japanese methods and also from making contacts with Japanese
                           companies; however, DOD officials and industry participants indicate that
                           there is limited interest in those technologies.


Japan Limits U.S. Access   The F-2 development phase agreements provide for flowback of
to Certain Technologies    technologies to the United States that are essentially developed from U.S.
Pending Resolution of      technical data. These so-called “derived” technologies are those based in
                           whole or in part upon U.S. technical data provided to Japan as part of this
Reclassification Request   agreement. The provision entitles the United States to receive all the
                           technical data and know-how required to replicate the item on a free and
                           automatic basis.

                           The United States also has access to Japanese indigenous or “non-derived”
                           technologies. Japan is to provide technical outlines on non-derived
                           technologies with sufficient information to enable the United States to
                           determine their value and usefulness. Those in the United States who wish
                           to use the technology can obtain it through a licensing agreement from the
                           originating Japanese company.

                           The production phase agreements contain similar provisions regarding
                           flowback of derived technologies and access to non-derived technologies.

                           The development agreements identified four major F-2 components—the
                           active phased array radar, the integrated electronic warfare system, the
                           inertial reference/navigation system, and the mission computer—as
                           Japanese indigenous or non-derived technologies. There is also a provision
                           granting Japan the option to request a change in technology classification
                           from derived to non-derived, provided it can demonstrate that the
                           technology was developed with insignificant or no U.S. input. In 1993, the
                           United States agreed to reclassify radar absorbing material to non-derived



                           14
                             Further details on this case have been classified by DOD and excluded from this report.



                           Page 11                                             GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                           B-272541




                           status, increasing the number of recognized Japanese indigenous or
                           non-derived technologies to five.

                           Japan later submitted 12 items as candidates for reclassification to
                           non-derived status. The U.S. government evaluated the 12 to determine if
                           Japan developed them with minimal or insignificant U.S. input, as Japan
                           claimed. In 1994, the U.S. government told Japan that the United States
                           would agree to reclassify 4 of the 12 items. Reclassification of the
                           remaining eight items remains unresolved. However, as we stated in our
                           August 1995 report, the United States was not receiving automatic
                           flowback of these technologies because the Japan Defense Agency was
                           reluctant to transfer candidate technologies before the U.S. evaluation was
                           complete. Japan believes that these technologies are not essentially
                           developed from U.S. technology. On the other hand, U.S. officials contend
                           that all F-2 technology is derived until classified otherwise and that Japan
                           is obligated to transfer data until classification negotiations end. At the
                           time of this review, the United States and Japan had not resolved the
                           classification status of the remaining eight technologies.

                           According to program officials, Japan has generally complied with the
                           flowback provisions for derived technologies and U.S. officials told us that
                           about 40,000 technical documents have been transferred to date.
                           Generally, compliance with the memorandum of understanding’s
                           requirement to submit outlines of non-derived items has been satisfactory.
                           For example, in the February 1996 working subcommittee meeting, Japan
                           provided technical outlines of the four items that were recategorized from
                           derived to non-derived status and included updates of the original five
                           non-derived items.


U.S. Access to Wing        The co-cured composite technology used by both countries to produce the
Technology Data Improves   F-2 wings, including materials, process specifications, and tooling was
                           designed by Mitsubishi and transferred to Lockheed Martin. For the
                           development phase, Lockheed fabricated five left-hand wing box
                           assemblies using Japanese materials and processing techniques.

                           The F-2 wings differ from the traditional F-16 aluminum wings in several
                           respects, but the most significant feature is the use of co-curing
                           technology whereby composite parts are bonded together without
                           conventional metal fasteners. In terms of performance, the significantly
                           lighter F-2 wings are expected to be more durable, provide higher strength,
                           and reduce flutter problems.



                           Page 12                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                            B-272541




                            In our August 1995 report, we stated that Lockheed was not at that time
                            receiving all of the wing data necessary to apply the composites
                            technology to other programs. The U.S. contractor and DOD program
                            officials have recently indicated that technology transfers from Japan have
                            been successful and continue to be effective and that Lockheed is
                            generally satisfied with the transfer of Japanese technology. Lockheed
                            officials indicated that Lockheed now has had sufficient access to Japan’s
                            ground tests and that they expect to have access to the Japanese
                            government’s flight testing data as government-led flight testing increases.

                            Other DOD contractors, however, were unable to obtain access to the wing
                            technology until September 1995 when DOD and the Japan Defense Agency
                            agreed to grant DOD and DOD contractors access to the co-cured composite
                            wing technology.

                            In terms of potential application to other programs, Lockheed officials
                            explained that some of the F-2 tooling techniques are of interest to them.
                            In January 1996, for example, Lockheed Martin announced that the
                            company had combined technology derived from the F-2 program with its
                            own manufacturing processes to manufacture a composite bulkhead. The
                            bulkhead is to be used in demonstration tests for the Joint Advanced
                            Strike Technology program for potential cost-saving manufacturing
                            options.


Technology Visits to        Throughout the development phase of the program, DOD’s F-16 program
Evaluate F-2 Technologies   office, in coordination with the Commerce Department, conducted a series
Result in Limited U.S.      of technology visits to observe and evaluate Japanese technology. As a
                            result of these visits, the program office prepared Technology Assessment
Government and Industry     Reports for inclusion in Defense Technical Information Center’s (DTIC)
Interest                    database. This database can be accessed by U.S. firms interested in
                            learning about the technologies.15




                            15
                              The DTIC provides scientific technical information principally to DOD. DTIC’s resources are
                            intended primarily for federal government agencies and their contractors. DOD contractors who are
                            registered DTIC users and are interested in F-2 technical abstracts can access technical abstracts
                            sorted in the following categories: air vehicle, airframe, landing gear, propulsion, fuel, environmental
                            control, crew, flight control, hydraulic, armament, weapons delivery, avionics, electrical,
                            instrumentation, operational software, inertial reference/navigation system, integrated electronic
                            warfare system, mission computer, active phased array radar, and radar-absorbing material.



                            Page 13                                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                                 B-272541




                                 Technology visits were conducted for the five technologies reclassified to
                                 non-derived,16 and plans are currently underway to determine whether to
                                 review the four additional technologies recategorized to non-derived
                                 status in December of 1994. Table 1 summarizes the technology visits
                                 conducted and the level of participation by U.S. industry.

Table 1: Summary of Technology
Visits                                                                                                  Number of U.S.
                                 Technology                          Date of visits                     companies attending
                                 Active phased array radar           May 1991                           14
                                                                     July 1993
                                                                     November 1994
                                 Mission computer                    November 1991                      DOD only
                                                                     May 1993
                                 Integrated electronic warfare       July 1993                          10
                                 system                              September 1994
                                                                     December 1995
                                 Inertial reference/navigation       November 1994                      DOD only
                                 system                              September 1994
                                 Radar-absorbing materials           June 1995                          DOD only
                                 Co-cured composite wing             March 1996                         13
                                 (symposium)

                                 Key objectives of the technology visits were to allow DOD to evaluate
                                 technologies of interest for its own potential use and to introduce U.S.
                                 companies to the F-2 technologies. It would then be up to the individual
                                 firms to decide whether or not to enter into contractual or licensing
                                 arrangements with individual Japanese companies.

                                 Active Phased Array Radar System

                                 To evaluate the F-2’s active phased array radar system, the U.S. Air Force
                                 acquired five transmit/receive modules to test and evaluate at its Wright
                                 Laboratory. The radar was of interest to DOD because it incorporates new
                                 technologies; however, some officials believe that U.S. radar technology
                                 being developed for the F-22 is a generation ahead of Japanese technology.
                                 Although there is limited commercial application for a fire control radar,
                                 some of its parts could be of interest to U.S. companies and at least one
                                 U.S. company expressed interest. In general, the U.S. industry participants
                                 were favorably impressed with the level of access to active phased array
                                 radar technology during the visit but found that the technology was not

                                 16
                                  As of February 1996, the program office did not plan additional future visits for the technologies
                                 described above, but expected that as the development phase reaches completion and test results
                                 become available, the United States would consider additional technology visits.



                                 Page 14                                              GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
B-272541




quite as advanced as expected. Also, industry participants observed that
the approaches used by Japanese industry to package and seal the radar
modules are not a low-cost approach by U.S. industry standards.

Mission Computer

According to program officials, the F-2’s mission computer is very similar
in capability to the F-16’s.

Integrated Electronic Warfare System

Although the U.S. visitors found the technology visit informative, they
found that additional detailed data was required before a complete
technology assessment could be made. Some participants commented that
although details of the Japanese program were provided, there was
insufficient detail for U.S. companies to make a commercial decision.
Moreover, the overall quality of the system will be determined during the
test phase.

Inertial Reference/Navigation System

The F-2’s inertial reference/navigation system does not use any significant
advances in technology beyond those employed on the F-16. Moreover, the
F-16 is also being equipped with the global positioning system, also used
by commercial airlines. The F-2 will not use the global positioning system
and its navigation system does not provide capabilities beyond that
available in U.S. systems. Therefore, neither U.S. government nor industry
officials expressed interest in this technology.

Radar-Absorbing Materials

A small government team conducted a technology visit in June 1995 to
discuss radar-absorbing materials. The government officials found that the
visit was informative and responsive to U.S. requests for information, but
did not see the technology as advanced as U.S. technology in this area.
Nevertheless, officials indicate that more information on the electrical
performance data of the radar-absorbing material—not available at the
time of the visit—will be needed in order to determine whether the
material would be valuable for U.S. industry.




Page 15                                GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
B-272541




Co-cured Composite Wing

A symposium was held in March 1996 to provide an overview to U.S.
industry participants of the wing in terms of materials, design, processes,
fabrication, and assembly. DOD and Commerce officials told us that the
participating companies have not indicated any further interest in
obtaining technical documents. The general consensus among industry
participants and U.S. Air Force officials is that it is extremely costly to
produce the wing structure by the co-curing process. Lockheed Martin,
however, has stated that the use of tooling techniques from the F-2
program has contributed to reducing the cost of manufacturing the
composite bulkhead materials for the Joint Advanced Strike Technology
program.

New Non-derived Technologies

According to program officials, of the four new non-derived
technologies—the digital flight control computer software, airborne video
tape recorder, cockpit television sensor, UHF/VHF radio—the most likely
candidate for a technology visit is the digital flight control software. The
F-2 uses a tri-redundant architecture with an analog back-up mode, while
the F-16 uses a quad-redundant architecture with a digital back-up mode.
With regard to the cockpit television sensor and the UHF/VHF radio,
program officials stated that the U.S. Air Force would not have an interest
because there is little technical innovation. The airborne video tape
recorder currently used in the Air Force’s F-16s is acquired from Japan,
obviating the need for additional evaluation of this system.

In addition to the systems-specific technology visits, the program office
conducted two other technical visits. First, in January 1996, an avionics
integration technology visit was conducted at Mitsubishi to review
software development and hardware integration processes. Second, a
structures test meeting was conducted at Japan’s Technology Research
and Development Institute structural test facility in April 1996. The visit
was part of an ongoing structural test dialogue between F-16 and F-2
structural engineers.




Page 16                                GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                      B-272541




                      U.S. program officials and industry experts indicate that Japan will
Japanese Aerospace    continue to gain experience and capability from the F-2 program, although
Industry Gains From   less capability than if it had pursued indigenous development. Specifically,
F-2 Program but       DOD officials believe that the F-2 program will significantly enhance
                      Japan’s systems integration capability—that is, incorporating subsystems
Continues to Be       and technologies into the airframe.
Constrained by
                      However, Japanese industry will not gain significant new capability in
Export Restrictions   engine production. Because of the terms of the engine licensed production
                      agreement, Japanese industry will not be modifying the General Electric
                      F110-129 engine for the F-2. Instead, it will produce increasingly more
                      parts along the course of the program. According to program officials, the
                      engine technology that will be released to Japan for this program is
                      roughly equivalent to technical data previously obtained from the United
                      States as part of the licensed production of the F-15J program. Moreover,
                      in accordance with U.S. restrictions on transfers of U.S. leading edge
                      technologies, critical engine technology is not being licensed to Japan.

                      Although the F-2 program will enhance Japan’s military aircraft capability,
                      exports of military technology continue to be constrained by the country’s
                      long-standing restrictions on exports of military weapon systems and
                      exclusively military technology. In 1967 Japan adopted its Three Principles
                      on arms exports, which, in effect, banned arms exports. These principles
                      were reaffirmed in 1976 and 1981. In 1983, Japan signed a bilateral
                      agreement with the United States to allow, on a limited basis, the transfer
                      of Japanese military technology to the United States. The agreement
                      recognized the imbalance of technology flows between the two countries
                      and permits the transfer of Japanese military technology to the United
                      States on a case-by-case basis. The agreement also reaffirmed Japan’s
                      policy that, in principle, dual-use technology can freely flow between the
                      two countries. Japanese technologies transferred to the United States for
                      the F-2 program are subject to this agreement.

                      Japan’s decreasing military procurement budget has led some industry
                      representatives to consider asking the Japanese government to relax its
                      ban on exporting military systems and components to the United States.
                      For example, in 1995, the defense production committee of Keidanren,
                      Japan’s largest industry association, released a statement alluding to a
                      desire to relax Japan’s restrictions on military exports to the United States.
                      Nonetheless, some experts believe that the long-term goal of Japan’s
                      defense industry is to export subcomponents to support U.S. programs




                      Page 17                                GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
                  B-272541




                  such as the F-22 aircraft, but that public sentiment will likely prevent the
                  Japanese government from relaxing the ban.


                  Current plans for monitoring implementation of the production
Recommendation    agreements do not provide a means to determine whether U.S. companies
                  actually receive approximately 40 percent of the F-2 production work by
                  the end of the program. Therefore, we recommend that the Secretary of
                  Defense direct the Defense Security Assistance Agency, as the lead U.S.
                  agency for the F-2 program, to collect sufficient data to determine the
                  value of production work received by U.S. companies at the end of the
                  program. This can be accomplished by collecting data from Lockheed
                  Martin, General Electric, and a selection of the smaller contractors
                  involved in this program. Collection of such data will allow the Defense
                  Security Assistance Agency to assess the soundness of the production
                  phase approach to workshare allocation and tracking for use in future
                  cooperative programs.


                  DOD  and the Departments of State and Commerce provided comments on a
Agency Comments   draft of the classified version of this report. DOD said it fully concurred
                  with the draft report. (See app. I.) In addition, DOD provided minor
                  technical comments that we have incorporated in the text as appropriate.
                  The Commerce Department stated that it generally agreed with the
                  report’s findings and conclusions. (See app. II.) The Department of State
                  orally concurred with the report.


                  To examine the status of the F-2 program, we reviewed documentation
Scope and         and interviewed officials from the Office of the Secretary of Defense for
Methodology       International Security Affairs, the Office of the Deputy Under Secretary of
                  the Air Force for International Affairs, the F-16 program office at
                  Wright-Patterson Air Force Base, the Defense Security Assistance Agency,
                  and the Defense Technology Security Administration. We also interviewed
                  officials at the Departments of Commerce and State.

                  To examine the terms of the U.S. workshare, we reviewed the
                  memorandum of understanding for the production phase and compared it
                  to the memorandum of understanding for the development phase. We also
                  compared and contrasted other development phase implementing
                  agreements and similar production phase documents. We sought and
                  obtained production phase cost estimates from General Electric and from



                  Page 18                                GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
B-272541




Lockheed Martin. We reviewed and analyzed the methods DOD used to
calculate U.S. workshare.

To assess the status of technology flowback from Japan to the United
States and whether those technologies were of interest to the U.S.
government and industry, we reviewed minutes of Technical Steering
Committee meetings, summaries of technology visits, and summaries of
participants’ comments. We interviewed cognizant program officials to
obtain their overall impressions of the visits and of the technologies
observed. Additionally, to examine the status of Japan’s request for
recategorization, we obtained and analyzed documents describing criteria
for each reviewer’s conclusions. We also interviewed officials to confirm
our interpretation of those documents.

We conducted our review between March 1996 and December 1996 in
accordance with generally accepted government auditing standards.


We plan no further distribution of this report until 10 days from its issue
date. At that time we will send copies of the report to other interested
congressional committees and to the Secretaries of State, Commerce, and
Defense. Upon request, copies may also be made available to others.

This report was prepared under the guidance of Katherine V. Schinasi,
who can be reached at (202) 512-4841 if you or your staff have any
questions. Other major contributors to this report were
Karen S. Zuckerstein, M. Cristina Gobin, and Paula J. Haurilesko.




Henry L. Hinton, Jr.
Assistant Comptroller General




Page 19                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Contents



Letter                                                                                              1


Appendix I                                                                                         22

Comments From the
Department of
Defense
Appendix II                                                                                        23

Comments From the
Department of
Commerce
Related GAO Products                                                                               27


Table                  Table 1: Summary of Technology Visits                                       14


Figures                Figure 1: The F-2 Prototype                                                  3
                       Figure 2: Major Components of U.S. Workshare                                 9




                       Abbreviations

                       DOD       Department of Defense
                       DTIC      Defense Technology Information Center


                       Page 20                             GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Page 21   GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Appendix I

Comments From the Department of Defense




             Page 22       GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Appendix II

Comments From the Department of
Commerce




              Page 23      GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Appendix II
Comments From the Department of
Commerce




Page 24                           GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Appendix II
Comments From the Department of
Commerce




Page 25                           GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Appendix II
Comments From the Department of
Commerce




Page 26                           GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Related GAO Products


              U.S.-Japan Cooperative Development: Progress on the FS-X Program
              Enhances Japanese Aerospace Capabilities (GAO/NSIAD-95-145, Aug. 11, 1995).

              Asian Aeronautics: Technology Acquisition Drives Industry Development
              (GAO/NSIAD-94-140, May 4, 1994).

              Foreign Technology: Collection and Dissemination of Japanese
              Information Can Be Improved (GAO/NSIAD-93-251, Sept. 30, 1993).

              Competitiveness Issues: The Business Environment in the United States,
              Japan, and Germany (GAO/GGD-93-124, Aug. 9, 1993).

              High Technology Competitiveness: Trends in U.S. and Foreign
              Performance (GAO/NSIAD-92-236, Sept. 16, 1992).

              Technology Transfer: Japanese Firms Involved in F-15 Coproduction and
              Civil Aircraft Programs (GAO/NSIAD-92-178, June 10, 1992).

              Defense Technology Base: Risks of Foreign Dependencies for Military
              Unique Critical Technologies (GAO/NSIAD-92-231, June 5, 1992).

              U.S.-Japan Codevelopment: Update of the FS-X Program (GAO/NSIAD-92-165,
              June 5, 1992).

              Foreign Technology: Federal Processes for Collection and Dissemination
              (GAO/NSIAD-92-101, Mar. 23, 1992).

              Aerospace Plane Technology: Research and Development Efforts in Japan
              and Australia (GAO/NSIAD-92-5, Oct. 4, 1991).

              Commercialization of Technology by Japanese Companies
              (GAO/T-NSIAD-91-32, Apr. 30, 1991).

              U.S-Japan Codevelopment: Review of the FS-X Program (GAO/NSIAD-90-77BR,
              Feb. 6, 1990).

              Investment in Foreign Aerospace Vehicle Research and Technological
              Development Efforts (GAO/T-NSIAD-89-43, Aug. 2, 1989).

              U.S.-Japan FS-X Codevelopment Program (GAO/T-NSIAD-89-32, May 16, 1989).

              U.S.-Japan FS-X Codevelopment Program (GAO/T-NSIAD-89-31, May 11, 1989).



              Page 27                               GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
           Related GAO Products




           U.S. Military Aircraft Coproduction With Japan (GAO/T-NSIAD-89-6, Feb. 23,
           1989).

           Support for Development of Electronics and Materials Technologies by the
           Governments of the United States, Japan, West Germany, France, and the
           United Kingdom (GAO/RCED-85-63, Sept. 9, 1985).

           Industrial Policy: Case Studies in the Japanese Experience (GAO/ID-83-11,
           Oct. 20, 1982).

           Industrial Policy: Japan’s Flexible Approach (GAO/ID-82-32, June 23, 1982).

           U.S. Military Coproduction Programs Assist Japan in Developing Its Civil
           Aircraft Industry (GAO/ID-82-23, Mar. 18, 1982).




(707233)   Page 28                                GAO/NSIAD-97-76 U.S.-Japan Fighter Aircraft
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested