WASHINGTON: Acquisition experts agree that accurate cost estimates can be devilishly difficult to get right. The Pentagon’s top cost estimator, Christine Fox, says current cost estimates are often accurate within several percentage points. That’s impressive, but on programs measured in the tens or hundreds of billions of dollars, a few percentage points can mean a few billion dollars.
Case in point: the F-35 Joint Strike Fighter. Its cost estimates have wandered between $1.1 trillion and $1.5 trillion just in the last year; that’s a $400 billion difference. Now, that estimate assumes the F-35 flies for more than half a century (55 years) and makes all sorts of highly questionable assumptions, like the rate of inflation, the price of fuel, labor costs and on and on.
All of this really matters, not so much because someone may be wrong or right, but because these numbers will shape the political environment within which America’s primary fifth generation fighter will live or die. Go too high and the political pressure to limit the number of F-35s bought by the Air Force, Navy and Marines will grow unbearable, the numbers will be cut and the unit price will soar, creating even more pressure to cut the size of the fleet. In defense circles, this is fondly known as the death spiral.
The latest stab at estimating the F-35’s costs will come May 23, when the benchmark Selected Acquisition Report is scheduled for release. Lt. Gen. Christopher Bogdan, the head of the F-35 joint program office, told the Dutch Parliament’s defense subcommittee that a key component of the F-35’s life cycle costs, cost per flying hour, may be $24,000, just 10 percent more than the F-16 costs. This estimate was developed by the Air Force, working with Fox’s shop, the Cost Assessment & Program Evaluation office (CAPE).
But a direct comparison of just flying hour costs will not give you an accurate picture of the overall costs of any new airplane. Here’s where we just begin to get at the fragile nature of cost estimates. First, comparing the F-35 to the F-16 isn’t entirely apples to apples, given that one is stealthy and the other is not. Add to that the fact that Air Force isn’t including the A-10 in the estimate even though the F-35A is designed to replace the A-10 as well as the F-16.
Then there’s the fact that just days after Bogdan told the Dutch of the latest estimate, Frank Kendall, the top man at the Pentagon when it comes to acquisition, told reporters he thought Bogdan’s estimates were too optimistic. The last SAR cited flying costs for the F-35A, the Air Force version, at $31,900. The F-16 C/D comes in at $22,500. Kendall said he expected the number to be lower than before, but not as low as Bogdan’s figures would seem to indicate. That will be reflected in the SAR.
The Pentagon has found at least six different ways to calculate the F-35’s costs per flying hour, Kendall said. If you don’t fly the aircraft as often , which is likely to be the case given the F-35’s simulators, the flying cost goes up because the simulators aren’t included in the flying hours since you aren’t, well, flying.
We hear the SAR estimate will not include all new estimates of the various factors that went into the last estimate. The Joint Requirements Oversight Council met yesterday to discuss some of this and it’s safe to say that one of the biggest pushes we will see when the new numbers come out is to make the process and assumptions that went into the SAR more transparent, and thus more defensible.
But once you broaden your look beyond flying hour costs to include all life cycle costs, the F-35 is likely to look better because it will cost the same or less than legacy aircraft, Kendall said. However, those costs will vary country by country. “The question that I think matters is what is the cost of ownership?” Kendall told us. “What is it going to cost you to have comparable levels of readiness for that aircraft?” For example, different countries will fly the aircraft at different rates and buy varying amounts of spare parts.
On top of all that, the Air Force version of the aircraft, the F-35A, is only one of three Joint Strike Fighter variants that will replace five different existing aircraft. Add to the F-16 and the A-10 for the Air Force, the F/A-18 (but not the Super Hornet), the EA-6B Prowler, and the AV-8B Harrier. If there are six different ways to calculate flying hours costs just for the F-16 and the F-35A, imagine how many permutations you can come up with when you add these other planes.
When I try to wrap my head around this, I feel a bit like a monk estimating the number of angels that can dance on the head of a pin.