Tactical Aircraft
DOD's Cancellation of the Joint Strike Fighter Alternate Engine Program Was Not Based on a Comprehensive Analysis Gao ID: GAO-06-717R May 22, 2006The Department of Defense (DOD) expects to purchase about 2,400 Joint Strike Fighter (JSF) aircraft, with potential international sales of 2,000 to 3,500 aircraft. When the number of aircraft engines and spare parts expected to be purchased is considered--along with the lifetime support needed to sustain the engines--the future financial investment will be significant. DOD implemented the JSF alternate engine development program in 1996 to provide competition between two engine manufacturers in an effort to achieve cost savings, improve performance, and gain other benefits. Since then, DOD has invested $1.2 billion in the alternate engine program, and, in August 2005, it awarded a $2.4 billion contract for system development and demonstration of an alternate engine. However, in its fiscal year 2007 budget submission, DOD proposed canceling the alternate engine program. Concerned whether this decision was based on sound analysis, Congress asked us to review DOD's rationale for canceling the program and the analysis supporting it, including the life cycle savings, benefits, and risks assessed.
DOD's decision to cancel the JSF alternate engine program was driven by the need to identify sources of funding in order to pay for other priorities within the department. In making the decision, the department did not conduct a new and comprehensive analysis, but instead relied on selective elements of two prior studies done in 1998 and 2002. In supporting the decision to cancel, officials focused only on the potential up-front savings in engine procurement costs. They did not, however, consider the full long-term savings that might accrue from competition for providing support for maintenance and operations over the life cycle of the engine. Both prior studies had recommended proceeding with the alternate engine program, despite the lack of significant procurement cost savings, because of a number of other benefits competition was likely to provide. Also in supporting the decision to cancel, officials cited favorable progress made by the primary JSF engine and its predecessor F-22A engine as reducing operational risks from a single source. However, the primary JSF engine has completed only a small portion of its ground tests and has not yet been flown, while the F-22A engine has completed about 10 percent of its hours needed for system maturity and is not currently meeting some reliability goals. Further, experts from one early study concluded that the commonality with the F-22A engine is of limited benefit for reducing development risk of the JSF engine.
GAO-06-717R, Tactical Aircraft: DOD's Cancellation of the Joint Strike Fighter Alternate Engine Program Was Not Based on a Comprehensive Analysis
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May 22, 2006:
The Honorable John Warner:
Chairman:
Committee on Armed Services:
United States Senate:
The Honorable Curt Weldon:
Chairman:
Subcommittee on Tactical Air and Land Forces:
Committee on Armed Services:
House of Representatives:
Subject: Tactical Aircraft: DOD's Cancellation of the Joint Strike
Fighter Alternate Engine Program Was Not Based on a Comprehensive
Analysis:
The Department of Defense (DOD) expects to purchase about 2,400 Joint
Strike Fighter (JSF) aircraft, with potential international sales of
2,000 to 3,500 aircraft. When the number of aircraft engines and spare
parts expected to be purchased is considered--along with the lifetime
support needed to sustain the engines--the future financial investment
will be significant. DOD implemented the JSF alternate engine
development program in 1996 to provide competition between two engine
manufacturers in an effort to achieve cost savings, improve
performance, and gain other benefits.
Since then, DOD has invested $1.2 billion in the alternate engine
program, and, in August 2005, it awarded a $2.4 billion contract for
system development and demonstration of an alternate engine. However,
in its fiscal year 2007 budget submission, DOD proposed canceling the
alternate engine program. Concerned whether this decision was based on
sound analysis, you asked us to review DOD's rationale for canceling
the program and the analysis supporting it, including the life cycle
savings, benefits, and risks assessed.
To determine DOD's rationale for and analysis supporting the decision
to cancel the alternate engine program, we obtained and discussed data
from the Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Office of the Director of Program
Analysis and Evaluation; and Air Force and Navy acquisition offices. We
also interviewed officials from the Office of the Director, Operational
Test and Evaluation, and the F-22A engine office, the predecessor
engine for the JSF engine. We reviewed the data, analyses, assumptions,
and results of two prior program management advisory group
studies[Footnote 1] and the justification briefing provided to Congress
by the department. The advisory group studies and briefing were
identified as the analytical underpinnings of the decision. We also met
with the Air Force executive who co-led both advisory groups and was
the Air Force's propulsion product group manager. Finally, the JSF
program office stated that it was not involved in the termination
proposal. In performing this review, we used data and information from
that office collected on other assignments. We performed our review
from March to April 2006 in accordance with generally accepted
government auditing standards.
Summary:
DOD's decision to cancel the JSF alternate engine program was driven by
the need to identify sources of funding in order to pay for other
priorities within the department. In making the decision, the
department did not conduct a new and comprehensive analysis, but
instead relied on selective elements of two prior studies done in 1998
and 2002. In supporting the decision to cancel, officials focused only
on the potential up-front savings in engine procurement costs. They did
not, however, consider the full long-term savings that might accrue
from competition for providing support for maintenance and operations
over the life cycle of the engine. Both prior studies had recommended
proceeding with the alternate engine program, despite the lack of
significant procurement cost savings, because of a number of other
benefits competition was likely to provide. Also in supporting the
decision to cancel, officials cited favorable progress made by the
primary JSF engine and its predecessor F-22A engine as reducing
operational risks from a single source. However, the primary JSF engine
has completed only a small portion of its ground tests and has not yet
been flown, while the F-22A engine has completed about 10 percent of
its hours needed for system maturity and is not currently meeting some
reliability goals. Further, experts from one early study concluded that
the commonality with the F-22A engine is of limited benefit for
reducing development risk of the JSF engine.
DOD's Rationale For Terminating The Alternate Engine Program:
The decision for canceling the JSF alternate engine program was driven
by budget needs outside the JSF program. The decision was a consequence
of budget-cutting exercises to meet Office of the Secretary of Defense
(OSD) spending targets and to begin implementing Quadrennial Defense
Review (QDR) decisions. The alternate engine program was deemed to have
a lesser priority than other major DOD activities and programs. DOD
officials and the justification briefing stated that the rationale for
canceling the program was no net cost savings from competing engine
buys and minimum operational risk from relying on a single source.
Funding for the alternate engine was included in the Navy's and Air
Force's initial 2007 budget submissions, according to the services'
acquisition officials. However, because of budget constraints, OSD
directed the military services to identify alternative sources for
reducing the fiscal year 2007 future years defense budget. Both
services proposed the termination of the alternate engine program. DOD
officials estimated that canceling the program would result in savings
of about $2 billion over the remaining 8 years of the alternate engine
development program, which could then be used to fund higher-priority
programs. In recent testimony, the Under Secretary of Defense for
Acquisition, Technology, and Logistics stated that the department
ultimately concluded that maintaining two engine suppliers for the JSF
program was not the most efficient use of its resources. Department
officials also noted that the primary engine development program was
progressing well, making a second engine program unnecessary. On the
basis of its assessments of the progress of the primary engine for the
JSF, the F-22A engine (which served as the basis for the primary JSF
engine), and past fighter engine experience, officials deemed
operational risks associated with a single engine supplier acceptable.
DOD'S Decision To Cancel The Engine Competition Was Based On
Insufficient Cost, Savings, And Performance Data:
DOD did not conduct an up-to-date, comprehensive analysis of the total
life cycle costs, savings, and benefits to support its decision to
terminate the JSF's alternate engine development program. Instead, DOD
officials used two prior studies and considered the savings from engine
procurement only, excluding potential life cycle cost savings
associated with supporting, operating, and maintaining the fleet. These
officials also stated that the operational risk from relying on a
single supplier is reduced by favorable test and operational
experiences with the primary JSF and F-22A engines. However, this
assessment is based on:
* limited ground testing of the primary JSF engine and no actual flight
test results;
* experience with the F-22A engine, which has only completed about 10
percent of the operational flight hours needed to achieve system
maturity and which has still not achieved its reliability goal; and:
* comparisons with the F-22A engine, which will likely have different
operational uses than the JSF engine.
DOD's Decision Is Not Supported by a Current and Comprehensive Analysis
of Costs and Benefits:
DOD officials stated that the decision to cancel the JSF alternate
engine program is based largely on studies conducted in 1998 and 2002
by program management advisory groups. These groups recommended that
DOD proceed with the alternate engine program, noting that the
recommendation was made independent of the services' abilities to fund
the program. The advisory groups determined that developing an
alternate JSF engine had significant benefits in the areas of
contractor responsiveness, industrial base, readiness, and
international relations. They also reported finding marginal benefits
in the areas of cost savings and additional engine growth capabilities
(ability to add future engine improvements), and no benefit to reducing
development risk without restructuring the program. Table 1 provides a
summary of the program management advisory group study results.
Table 1: 1998 and 2002 Program Management Advisory Group Study Findings
on the Benefits of an Alternate Engine Program:
Factor assessed: Costs;
Beneficial: 1998: [Empty];
Beneficial: 2002: [Empty];
Marginal: 1998: [X];
Marginal: 2002: [X];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: Development risk reduction;
Beneficial: 1998: [Empty];
Beneficial: 2002: [Empty];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [X];
No value: 2002: ".
Factor assessed: Engine growth potential;
Beneficial: 1998: [Empty];
Beneficial: 2002: [Empty];
Marginal: 1998: [X];
Marginal: 2002: [X];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: Fleet readiness;
Beneficial: 1998: [X];
Beneficial: 2002: [X];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: Industrial base;
Beneficial: 1998: [X];
Beneficial: 2002: [X];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: International implications;
Beneficial: 1998: [X];
Beneficial: 2002: [X];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: Other considerations[A];
Beneficial: 1998: [X];
Beneficial: 2002: [X];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Factor assessed: Overall;
Beneficial: 1998: [X];
Beneficial: 2002: [X];
Marginal: 1998: [Empty];
Marginal: 2002: [Empty];
No Value: 1998: [Empty];
No value: 2002: [Empty].
Source: DOD (data); GAO (analysis and presentation).
[A] Other considerations include contractor responsiveness, improved
design solutions, and competition at the engine subsystem level.
[End of table]
DOD's current conclusion that net savings from an alternate engine
program would be negligible at best was largely based on a break-even
analysis in the 2002 study that calculated how many engines would need
to be purchased at prices reflecting savings from competition to
recover the costs incurred to develop the second source. The analysis
used the total projected costs of the alternate engine development
program, an estimated $2.8 billion at that time.[Footnote 2] However,
DOD has now invested about one-third of that total since the 2002
study. Excluding these sunk costs and basing the break-even analysis on
development costs to go from this point forward would reduce the engine
costs that would need to be recovered through cost savings associated
with ongoing competition between engine suppliers. For example, on the
basis of the estimated development costs to go and using the same
assumptions and data as the 2002 study, we estimate that achieving 20
percent savings from competition would allow a break-even point to
occur at about 1,700 engines--not 2,500, as projected in the 2002
study. An earlier break-even point in the purchase of engines would
increase the potential for savings over the life of the program.
Officials indicated that DOD's decision did not consider all the costs
and savings over the projected 30-year life cycle of the weapon system.
A life cycle cost-benefit analysis would consider all the potential
costs and savings associated with the competition, including operations
and support, over the expected life of the system. DOD did not analyze
the potential impact that a second supplier and supply chain could have
on long-term support costs for buying spares, engine parts, and
maintenance services. Given that a large percentage of a fighter
aircraft's total life cycle costs are incurred after it has been
acquired and fielded, potential savings from competition could be
significant. Competition could also yield savings through reliability
improvements. The 1998 study stated that a 10 percent improvement in
reliability could allow the user to omit one heavy maintenance cycle of
the engine, saving $3 billion in operating and support costs, and
concluded that the costs for developing the alternate engine would
likely be recovered through production and operational cost savings.
The 2002 study did not quantify potential operations and support
savings, but supported the earlier study's conclusions on the benefits
from competition.
Finally, DOD officials indicated that the decision to cancel the engine
competition did not fully consider the other, less quantifiable
benefits that were strongly considered by the program management
advisory groups in recommending the continuation of the program in 1998
and 2002. These studies concluded an alternative engine program would:
* maintain the industrial base for fighter engine technology,
* enhance readiness,
* instill contractor incentives for better performance,
* ensure an operational alternative if the current engine developed
problems, and:
* enhance international participation.
Many of these were important benefits realized by past competitions
such as that for the Air Force's F-16 engines. While these benefits are
difficult to quantify, the Air Force engine manager who co-led both
advisory group studies explained that they are valuable when trying to
manage significant numbers of fighter-type engines to ensure combat
readiness. He told us that problems are magnified when trying to manage
a single engine system, which can require substantial manpower and
extra hours to keep aircraft flying when engine problems occur. In his
opinion, the benefits of a dual-source engine would outweigh the costs.
He stated that he had not seen anything that would change this
conclusion since the last advisory group study was conducted.
More Engine Performance Data Are Needed to Reduce Operational Risks:
Despite DOD officials' assertions that testing to date has reduced
risks, there has not been sufficient testing to demonstrate that the
primary JSF engine will perform as expected. At the time of the
decision to cancel the alternate engine, the primary JSF engine had
only completed about 4,600 hours of ground tests--about one-third of
the hours planned--and had not yet been flight-tested in a JSF
aircraft. The first flight of the conventional takeoff and landing
variant aircraft is not expected until October 2006. First flight of
the short takeoff and vertical landing variant is scheduled for early
2008, and the carrier variant in early 2009. The first dedicated
operational testing that will measure the JSF's operational
effectiveness and suitability is scheduled for 2011. Specific
propulsion flight testing starts out slowly and begins to increase
significantly beginning in 2009 (see fig. 1).
Figure 1: Planned Propulsion Performance Flight Testing and First
Flights for the Three JSF Variants:
[See PDF for Image]
[End of Figure]
The maturity of the JSF engine is also reflected in the program's
contract strategy, in which initial production orders for the JSF
engines will be on a cost reimbursement basis. This type of contract is
used when the uncertainties involved in contract performance do not
permit costs to be estimated with sufficient accuracy to use any type
of fixed-price contract. This places the risk from the uncertainties
with the buyer--in this case, DOD. The program plans to transition to
fixed-price-type contracts for the engine when processes stabilize and
the system matures, sometime before full-rate production begins in
2013. This will shift more risk to the contractor.
DOD officials also cite the good performance to date of the F-22A
engine as reducing the risk from relying on a single source, but this
argument has several qualifications. First, although the JSF primary
engine is a derivative of the F-22A engine, the F-22A has completed
only about 20,000 operational engine hours; this represents about 10
percent of the 200,000 hours considered sufficient for system maturity.
F-22A program engine officials noted that while overall performance has
been good, the F-22A engine is currently not meeting several
reliability goals. For example, the engine's mean time between
maintenance actions was expected to be 100 hours on average at its
initial service release in 2002. However, as of April 2006, the engine
was experiencing an average of 60 hours between maintenance actions.
The program projects that at system maturity in 2010, the F-22A engine
mean time between maintenance actions will be about 100 hours, but that
is only 50 percent of its performance requirement for 200-hour mean
time between maintenance actions. Officials also cited four other
reliability goals, two that are currently being met and two that are
not being met.
Second, the two aircraft have different missions and operational
concepts that may produce different stresses on the engines. The single-
engine JSF aircraft is being designed to rapidly transition between
different air-to-surface and air-to-air missions while still airborne.
The JSF aircraft design has three variants, each with a different
operational concept. In contrast, the dual-engine F-22A will primarily
be an air-to-air fighter that will fly at high speed and high altitude.
Both test and engine officials stated that the operational environment
for the JSF may put more stress on the plane's engine than the
operational environment for the F-22A puts on its engine. According to
engine officials, the fact that the JSF relies on a single engine for
its performance magnifies any potential problems that it may incur and
increases the maintenance needed to sustain its readiness.
Third, the 1998 study stated there was limited commonality between the
F-22A engine and the JSF engine configurations and for that reason
there was limited reduction in development risk achieved from F-22A
experience. The study stated the development risk for the JSF engine
was commensurate with a new fighter engine, and of particular concern
were the high temperature and short takeoff and vertical landing
integration requirements. Engine and acquisition officials we talked to
had differing views on the degree of commonality between the two
engines and impacts on development risk. We note that the development
effort on the JSF primary engine is expected to cost $5.8 billion,
indicating a substantial development effort.
Conclusions:
The relative advantages and disadvantages of the JSF alternate engine
program can change significantly depending upon the factors assessed
and considered. In deciding to terminate the program in 2007, DOD did
not conduct a current and comprehensive study of the costs and benefits
of the alternate program. It relied on selected elements of two older
studies that reviewed the JSF alternate engine program in 1998 and
2002. It focused on the estimated savings to be accrued from the
reduced price to buy engines based on competition between two sources.
It did not consider the benefits, including potential cost savings,
that might be derived from competition during the life of the JSF
program--future engine buys, spare parts, maintenance, reliability
improvements, support improvements, industrial base benefits, and other
longer-term factors. The two prior studies both concluded that these
benefits would be substantial and sufficient reason to continue the
program. In addition, the decision was based on a break-even analysis
for the total investment cost (sunk costs as well as costs to go) of
the alternate engine program. Sunk costs should be excluded from the
break-even analysis upon which the decision is based, thereby lowering
the number of engines required to break even. In deciding to cancel the
competition, DOD determined that it could not afford this program,
given other needs in DOD and the government. It had to find money for
other budget priorities, and the alternate engine program was not
accorded a high enough priority. The question remains whether a more
current, comprehensive, and independent study including all costs,
benefits, and risks--not just up-front procurement costs--would result
in a different answer that would cause DOD to reconsider its decision
to cancel the alternate engine program and instead afford it a higher
priority and cause it to continue the JSF engine competition.
Agency Comments and our evaluation:
DOD provided us with written comments on a draft of this report. The
comments appear in the enclosure to this letter.
In summary, DOD believes the report is misleading in a number of
respects in that there are many important issues that deserve more
thoughtful and balanced consideration than the information presented in
our report. It highlights these in its comments, which include its
beliefs that (1) data showing savings from competition do not exist and
(2) certain higher costs would exist if the competitive alternate
engine program continued. We agree that there is a mix of factors that
can increase and decrease costs as well as influence readiness and the
industrial base. However, as pointed out in DOD comments, there is
currently a paucity of empirical data about the costs and benefits of
this program; therefore we think the issues raised by DOD in its letter
need to be considered within an overall and comprehensive analysis of
the life cycle costs and benefits of a competitive alternate JSF engine
program.
Our tasking, from both the Senate Armed Services Committee and the
House Armed Services Tactical Air and Land Forces Subcommittee, was to
review DOD's rationale for canceling the program and the analysis
supporting that decision. It was not our tasking to perform the
analysis for DOD. Our conclusions were that DOD had not conducted a
current and comprehensive study of the costs and benefits of an
alternate engine program over the entire life of the JSF. Instead of
undertaking a new study, DOD relied on selective elements of two older
studies, both of which concluded that significant benefits, beyond
price savings in the acquisition program, justified continuing the
alternate engine program. DOD supported and funded the alternate engine
program in prior years but now believes the program is not cost-
beneficial and presents a low risk if canceled. We found that the
affordability pressures caused by other more pressing demands on the
DOD budget this year caused DOD to look for sources of funding. As a
result, DOD viewed the alternate engine program as a lesser priority
within the agency.
We are sending copies of this letter to the Honorable Donald H.
Rumsfeld, Secretary of Defense; the Honorable Michael W. Wynne,
Secretary of the Air Force; and the Honorable Donald C. Winter,
Secretary of the Navy. We will make copies available to other
interested parties upon request. The letter is also available at no
charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-4841 if you or your staffs have any
questions. Contact points for our offices of Congressional Relations
and Public Affairs may be found on the last page of this report. Other
major contributors to this letter were Mike Hazard, Matt Lea, Bruce
Fairbairn, and Gary Middleton.
Sincerely yours,
Signed by:
Michael J. Sullivan, Director:
Acquisition and Sourcing Management:
Enclosure:
Comments from the Department of Defense:
Acquisition Technology And Logistics:
Office Of The Under Secretary Of Defense:
3000 Defense Pentagon:
Washington, DC 20301-3000:
May 16, 2006:
Mr. Michael J. Sullivan:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street:
N.W. Washington, D.C. 20548:
Dear Mr. Sullivan:
This is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) Draft Report, "Tactical Aircraft: DoD's
Cancellation of the Joint Strike Fighter Alternate Engine Program Was
Not Based on a Comprehensive Analysis" dated May 5, 2006 (GAO Code
120548/GAO-06-717R).
The GAO offered no recommendations; however, the Department would like
to provide a written response (enclosure).
The Department appreciates the opportunity to comment on the draft
report.
Sincerely,
Signed by:
Mark D. Sullivan:
Acting Director:
Defense Systems:
Enclosure:
As stated:
GAO DRAFT REPORT - DATED MAY 5, 2006 GAO CODE 120548/GAO-06-717R:
"TACTICAL AIRCRAFT: DOD's Cancellation of the Joint Strike Fighter
Alternate Engine Program Was Not Based on a Comprehensive Analysis"
(GAO Code 120548):
DEPARTMENT OF DEFENSE (DOD) COMMENTS:
In examining the JSF second engine supplier issue, GAO's draft report
to Senator Warner was misleading in a number of respects and left out
important information that runs counter to the draft report
conclusions.
The draft report concluded that the Department of Defense did not
conduct a current and comprehensive analysis of the costs and benefits
of maintaining two engine suppliers. Central to this argument was the
claim that DoD focused on the high investment and procurement costs of
establishing two suppliers and did not examine the "full long-term
savings which might accrue from competition. . . ." The draft report's
argument would lead one to believe that there are data providing
evidence of Operations and Support (O&S) savings from competition when,
in fact, such data do not exist.
We do know that some O&S costs will be higher with two suppliers of
engines-a fact not mentioned in the draft report to Senator Warner.
Although the Pratt & Whitney and General Electric engines are designed
to have identical external interfaces to the aircraft, making them
interchangeable, the two internal designs are significantly different.
Most of the engine parts are unique, including the fans, turbines,
combustors, and compressors. Use of the two types of engines would
require establishing two separate spares pipelines for fleet and depot-
level maintenance, providing additional training and tools for
maintenance personnel, creating two separate depot capabilities
(thereby increasing non-recurring costs and recurring unit repair costs
since each repair line would handle fewer units), and making future
modifications for growth, reliability improvements, safety
enhancements, and obsolescence management on two different engines.
The draft report critiques DoD for not considering the O&S savings from
buying engine spares from two suppliers instead of one supplier. This
argument, also used in testimony by GE Aviation President and CEO Scott
Donnelly, is misleading. Engine spares are not purchased in a
competitive environment, since, for example, DoD would not buy spares
made by Pratt & Whitney to support the GE engine. Therefore, we do not
expect competition to significantly affect the price of engine spare
parts.
If we do face engine problems in the future, we believe that fixing any
problems with the original engine will cost less than developing and
producing a second engine (which might develop its own unique
problems). To date, the performance of the Pratt & Whitney engine has
been excellent, giving us confidence in its reliability. The 2002 RAND
study, Military Jet Engine Acquisition, noted the key performance
requirements that led all three contractors to select the F119
derivative were "very high reliability for the single-engine Navy JSF
variant and sufficient non-augmented thrust for the short takeoff and
vertical landing JSF variant.".
The draft report does not mention why it is so difficult to achieve a
net cost savings from engine competition, despite considerable
discussion on this point with DoD officials. In addition to the upfront
development cost of at least $2.4 billion, several key factors work to
increase procurement costs. Producing a given amount of engines with
two suppliers instead of one supplier reduces the advantage from
"learning curve" effects (whereby costs decrease as a company produces
more units) and from "rate effects" (whereby fixed costs are spread
over production units). Our experience with the F404 engine in early-
model F/A-18s illustrates the point; the average unit costs of this
engine did not decrease after competition was introduced.
Finally, the draft report mischaracterizes DOD's rationale for
terminating the alternative engine program. The draft report states,
"The alternative engine program was deemed to have a lesser priority
than other major DoD activities and programs." A more accurate
description would address DOD's process of weighing the upfront costs
of paying for a second supplier against the risk of relying on a single
engine supplier. While DoD recognizes that there are benefits to having
two engine sources, the risk of a single engine supplier for JSF was
judged manageable compared to other risks the Department faces.
In summary, GAO's draft report to Senator Warner focuses on benefits
that cannot be supported by empirical data. The draft report criticizes
DoD for ignoring O&S savings but does not specify what those savings
are, how they might be achieved, and:
how they would outweigh the known costs-in investment, procurement, and
O&S-of maintaining two engine suppliers. We hope you'll agree that this
response raises important issues that deserve more thoughtful and
balanced consideration in your draft report.
(120548):
[End of Section]
FOOTNOTES
[1] Advisory groups composed of DOD and foreign partner representatives
from the technical, operational, and financial communities were
established under the aegis of the Assistant Secretary of the Navy for
Research, Development, and Acquisition to review technical and
programmatic issues of the alternate engine program, determine its
costs and benefits, and make recommendation for either continuing or
terminating the program.
[2] Dollars are fiscal year 2002 constant for comparison with the 2002
DOD break-even analysis.
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