Military


F-22 Raptor Cost

Two contracts totaling $10.91 billion ($9.55 billion for the airframe and $1.36 billion for engines) were awarded for Engineering and Manufacturing Development (EMD) of the F-22 and F119 to the then Lockheed/Boeing/General Dynamics team and Pratt & Whitney in August 1991.

Contract changes, including three Congressional budget cuts and subsequent rephases of the schedule since then have elevated the contract values to a total of $18.6 billion.

Under the terms of the EMD contract, the F-22 team will complete the design of the aircraft, produce production tooling for the program, and build and test nine flightworthy aircraft and two ground test articles.

In 1996, the Air Force Assistant Secretary for Acquisition commissioned a joint government/contractor team of experts, the F-22 Joint Estimate Team (JET), to review the F-22 program with the objective of identifying most probable cost and realistic initiatives that could be implemented to lower program costs.

The F-22 Engineering and Manufacturing Development (EMD) program required additional funding and time in order to reduce risk prior to entering production. This additional funding was contained within the F-22 total program budget through the Future Years Defense Plan (FYDP).

There was potential for cost growth in the F-22 Production program which is contained within the Program's budget estimate through a combination of: JET identified and definitized initiatives (Tier I) to cut costs as the program moves into high rate production (Beginning with Lot 6).

A government/industry long-term formal memorandum of agreement (MOA) to further reduce production costs through multi-year contracts, producibility enhancements, business and human resource consolidations, outsourcing, more aggressive materiel management and others (Tier II).

The JET recommended a program restructure that will accomplish the following:

  • Fund the cost growth in EMD through same-year zero base transfers (ZBTs) of program procurement funds.
  • Continue to deliver nine EMD and 339 production aircraft , but eliminate the requirement for Pre-Production Verification (PPV) aircraft. There were to have been four PPV aircraft. Increase system maturity relative to the production ramp rate (there will be six fewer production aircraft at the end of Low-Rate Initial Production (LRIP).
  • Change the baseline LRIP production ramp, which would have consisted of four lots of 4, 12, 24, 36 F-22s (76 aircraft). The JET recommendation is a LRIP ramp of 2, 6, 12, 20, 30 (70 aircraft) in 5 lots.
  • Moves Milestone III (the government's high-rate production decision) from September 2002 to July 2003.
  • Still deliver full warfighter capability at the scheduled Initial Operational Capability (IOC) date of November 2004.

The primary drivers of the cost growth in EMD include better information on touch labor (actual totals from the first EMD aircraft builds versus parametrics); additional flight test time based on historical rates from other programs; a projection that more time will be required to complete avionics integration; and increased engineering changes on the engine.

The JET-recommended restructure adds time and funding to reduce program risk prior to entering production, reinforcing EMD's purpose of having a producible design at the end of that phase. In addition, the JET recommended restructure more objectively ties the remaining portion of the EMD contract incentive fee to control cost, perform on schedule and keep the program affordable.

The JET established a process for touch and sustaining labor similar to that used on the C-17 cost review. For the remaining production costs, the JET developed a model for materiel, subcontracts, overhead, and support. The JET also identified the need for the program to address an industry-unique rate of inflation in this high technology segment of the economy.

To offset the identified production cost growth, the JET recommended contractor investments in producibility initiatives and support capability, as well as contractor commitment to early fixed-price incentive fee production contracts.

JET identified Tier I initiatives to offset cost growth:

  • Flowdown of efficiencies to subcontracts/material
  • Multi-year contract savings (similar to F-16)
  • Deletion of warranty
  • Producibility enhancements

Currently identified in the Air Force/contractor MOA, the following Tier II initiatives will further reduce program cost and address inflation increases identified by the team:

  • Additional multi-year contract savings (similar to F-16)
  • Additional flowdown of efficiencies to subcontracts/material
  • Contractor logistics support options
  • Business and human resources consolidation
  • Additional producibility enhancements

These combined production initiatives will ensure that the program remains within the Air Force's total current projected production costs.

In summary, the JET determined that additional F-22 EMD development funding required to reduce risk prior to entering production can be sourced by slowing the production ramp rate. The JET recommended and the corporate and Air Force leadership have jointly committed to a contract strategy for long-term affordability that incorporates several cost-saving initiatives, keeping the program within the current Air Force projected production costs.

In mid-2002 the Defense Department was assessing the F-22 program as part of a review directed by Defense Secretary Donald Rumsfeld that called for an option to reduce the quantity of program to 180 from 295. That's less than one-fourth the initial plan for 750 planes. As of 2002, DOD had spent $26 billion of the $69 billion planned for the F-22 program. All four defense committees in Congress had approved the request for $4.6 billion in fiscal 2003 to buy 23 aircraft; 10 were being purchased in FY2002.

Air Force officials announced 07 November 2002 a potential cost overrun of up to $690 million in the engineering, manufacturing and development phase of the F/A-22 program. The potential overrun appeared to be related to achieving cost and schedule in the developmental phase of the program, officials said. It is not related to its technology or performance. The aircraft remains on schedule for first aircraft delivery in 2004 and initial operational capability in 2005 as planned. The projected overrun is about 3.3 percent of the program's $20 billion development phase and about 1 percent of the program's $69.7 billion estimated total pricetag. The Pentagon approved an $876 million restructure to finance the extended development effort. The restructure sliced $763 million from the procurement profile, cutting 49 airframes from years 2004 to 2009. This decision brought the procurement profile from 325 to 276 through FY-09.

Cost Estimates
 
                           DOD's Projected Unit
                 Prices Before and After Restructuring
                                    Production
                            --------------------------
                              Low-rate     Full-rate
                            ------------  ------------
                            Units   Unit  Units   Unit
Estimates                           cost          cost  
--------------------------  ----  ------  ----  ------  
Before restructuring          76  $142.6   362  $102.8
Restructured without          70  $200.3   368  $128.2
 initiatives
Restructured with             70  $200.8   368  $ 92.4
 initiatives
------------------------------------------------------
SOURCE: GAO June 1997

Cost*
(FY '99 President's Budget)

Base Year (BY) '98 $

Then-Year (TY) $
( = Real Dollars)

Dem/Val (1986-91)  

3.8B

EMD (1991-2003)

19.2B**

18.9B**

RDT&E (Dem/Val + EMD)

23.8B**

22.7B**

Production (339 at 3/month)

34.2B

40.9B

Military Construction (MILCON)

.2B

.2B

Total Program

58.3B

63.8B

Unit Flyaway

81.0M

96.7M

Program Acquisition Unit Cost
(RDT&E+ Production+ MILCON)/341***

170.8M

187.3M

* As of August 1998
** Numbers Adjusted for Inflation
*** Includes two aircraft to be brought up to production standard

As of 2005 the production cost cap was $37.3 billion. Affordability concerns have, in part, led to the steady decrease in procurement quantities. Two major reviews of defense force structure and acquisition plans - the 1993 Bottom-Up Review and the 1997 Quadrennial Defense Review (QDR) - significantly reduced F/A-22 quantities. OSD's "buy to budget" acquisition strategy essentially placed a ceiling on total program costs resulting in reducing quantities. In December 2004, Program Budget Decision 753 reduced F/A-22 funding by $10.5 billion, further reducing in all likelihood procurement quantities from 275 to 178 aircraft. Program Budget Decision 753 nominally reduced the procurement quantity to 179 aircraft. Subsequently, the Air Force transferred one aircraft to be used as a permanent test bed, reducing the procurement quantity to 178. The recent of an F/A-22 has reduced planned operational aircraft to 177. The December 2004 budget decision also ended procurement in fiscal year 2008, instead of fiscal year 2011.

Program acquisition unit cost has doubled, from $149 million in $345 million in 2005. Program acquisition unit cost includes funding for development, procurement, related military construction, and initial modernization divided by total production quantity. It does not include later stage modernization costs and certain support costs.

Average unit flyaway cost includes the costs associated with procuring one aircraft, including the airframe, engines, avionics, other mission equipment, and certain nonrecurring production costs. It does not include "sunk" costs for development and test and other costs to the whole system, including logistical support and construction. The average unit flyaway cost for the F/A-22 in 2003 was about $178 million, while the unit flyaway costs for future annual buys were projected before the budget decision to decrease to $127 million, $111 million, and $108 million in fiscal years 2007, 2008, and 2009 respectively [that is to say, roughly double the unit flyaway costs of the single engine F-35]. With the program will be truncated in 2008, the less expensive aircraft in 2009 and beyond will not be bought and unit costs are projected at $135 million in 2007 and $149 million in 2008 (increases associated with close-out of production).

The Lot 7 flyaway unit cost is calculated by adding the Air Vehicle (AV) Lot 7 subassembly in FY 07, AV Lot 7 final assembly in FY 08, Engine Lot 7 subassembly in FY 07, Engine Lot 7 final assembly in FY 08, and 100% of Lot 7 Non-recurring flyaway in FY 07; then dividing the entire amount by the Lot 7 Aircraft (AC) quantity of 20.
Unit flyaway calculation:
816.846 AV Sub Assembly (FY 07)
+ 1423.449 AV Final Assembly (FY 08)
+ 133.958 Engine Sub Assembly (FY 07)
+ 312.568 Engine Final Assembly (FY 08)
+ 143.315 Non-recurring Flyaway
= 2830.136 Lot 7 Total Flyaway Cost
2830.136 / 20 Lot 7 AC
= 141.507 Flyaway Unit Cost

The Lot 7 weapon system unit cost is calculated by adding Lot 7 AV support in FY 07, Lot 7 AV support in FY 08, Lot 7 Engine Support in FY 07, Lot 7 Engine Support in FY 08, and 100% of Lot 7 OGC to the total flyaway costs; then dividing the entire amount by the Lot 7 AC quantity of 20.
Weapon system unit cost calculation:
286.129 Air Vehicle Support (FY 07)
+ 133.226 Air Vehicle Support (FY 08)
+ 42.324 Engine Support (FY 07)
+ 62.356 Engine Support (FY 08)
+ 81.327 Other Government Costs
+ 2830.136 Lot 7 Total Flyaway Cost
= 3435.498 Lot 7 Weapon System Cost
3435.498 / 20 Lot 7 AC
= 171.775 Weapon System Unit Cost



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