Tactical Aircraft: F/A-22 and JSF Acquisition Plans and 	 
Implications for Tactical Aircraft Modernization (06-APR-05,	 
GAO-05-519T).							 
                                                                 
The F/A-22 Raptor and Joint Strike Fighter (JSF)--two of the	 
Department of Defense's (DOD) major tactical aircraft fighter	 
programs--are intended to replace aging tactical fighter aircraft
with highly advanced, stealthy aircraft. The two programs	 
combined have a potential future investment of more than $240	 
billion. This testimony highlights key concerns in the F/A-22 and
JSF programs and discusses the implications on DOD's overall	 
investment strategy for modernizing its tactical fixed-wing	 
aircraft. Last month, GAO issued comprehensive reports on the	 
numerous setbacks these programs have experienced since they were
initiated and their effect on the F/A- 22 and JSF business cases.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-519T					        
    ACCNO:   A20879						        
  TITLE:     Tactical Aircraft: F/A-22 and JSF Acquisition Plans and  
Implications for Tactical Aircraft Modernization		 
     DATE:   04/06/2005 
  SUBJECT:   Air defense systems				 
	     Cost overruns					 
	     Defense capabilities				 
	     Defense procurement				 
	     Investment planning				 
	     National preparedness				 
	     Program evaluation 				 
	     Risk management					 
	     Strategic planning 				 
	     Schedule slippages 				 
	     Military aircraft					 
	     Cost analysis					 
	     Program goals or objectives			 
	     Program costs					 
	     DOD Quadrennial Defense Review			 
	     Eagle Aircraft					 
	     F-15 Aircraft					 
	     F-22 Raptor Aircraft				 
	     F-35 Aircraft					 
	     F/A-22 Aircraft					 
	     Joint Strike Fighter				 
	     F/A-18 Aircraft					 
	     Hornet Aircraft					 

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GAO-05-519T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on AirLand,

Committee on Armed Services,

U.S. Senate

For Release on Delivery

Expected at 2:30 p.m. EDT TACTICAL AIRCRAFT

Wednesday, April 6, 2005

    F/A-22 and JSF Acquisition Plans and Implications for Tactical Aircraft
                                 Modernization

Statement of Michael Sullivan, Director Acquisition and Sourcing Management
Issues

GAO-05-519T

April 6, 2005

TACTICAL AIRCRAFT

F/A-22 and JSF Acquisition Plans and Implications for Tactical Aircraft
Modernization

                                 What GAO Found

Significant changes in the F/A-22 program have severely weakened its
original business case. Since the F/A-22 program began in 1986, new
threats emerged and mission requirements changed; to keep the F/A-22
viable, the Air Force has planned for large investments in new
capabilities. Significant delays and cost increases have affected
affordability, reducing planned deliveries from 750 F/A-22 aircraft to
fewer than 180. The recent budget decision to terminate procurement of the
F/A-22 after fiscal year 2008 and the prospect of additional funding cuts
also have significant implications for the program's viability and
modernization efforts.

JSF's original business case, established when the program began in 1996,
is unexecutable. The cost estimate to develop the aircraft has increased
80 percent, operational capability has been pushed out 2 years, and
expected acquisition quantities have been cut by 535 aircraft. The JSF
program is approaching key investment decisions that will greatly
influence the efficiency of the remaining funding-more than 90 percent of
the $245 billion estimated total program costs. This sizable investment
greatly raises the stakes to meet future promises. While DOD has been
working to resolve early design and performance problems, continuing
program uncertainties suggest DOD could use more time to gain knowledge
before it commits to a new business case and moves forward. To reduce the
risk of further cost and schedule growth, any new business case must
include an acquisition strategy that adopts an evolutionary,
knowledge-based approach to product development. Currently, the JSF
program plans to make key production decisions before critical knowledge
is captured.

JSF Program's Annual Funding Requirements from 2005 to 2027 Dollars in
billions

14 12

10

8

6

4

2

0

Fiscal year

Source: GAO analysis of DOD data.

Taken together, these issues have broader implications for the DOD
tactical fixed-wing aircraft modernization program, raising questions as
to whether overarching goals to reduce average aircraft age and ownership
costs while maintaining the force structure are now achievable. The 2005
Quadrennial Defense Review provides an opportunity for DOD to assess needs
and plans and to weigh options for accomplishing its tactical aircraft
goals.

20052006

200720082009201020112012201320142015201620172018201920202021202220232024202520262027

                 United States Government Accountability Office

Mr. Chairman and members of the subcommittee:

I am pleased to be here today to participate in the Subcommittee's hearing
on the status of two of the Department of Defense's (DOD) major tactical
aircraft fighter programs, the F/A-22 Raptor and the F-35, also known as
the Joint Strike Fighter (JSF).1 Both programs are intended to replace

aging tactical fighter aircraft with highly advanced, stealthy aircraft.
These two programs represent a potential future investment for DOD of
about $240 billion to modernize tactical fixed-wing aircraft.

My statement today will highlight key concerns in the F/A-22 and JSF
programs. Our work has shown that because of the significant changes in
the F/A-22 development and procurement programs and the key investment
decisions remaining, a new business case is needed to justify aircraft
quantities and investments in new capabilities. Changes in the JSF program
and DOD's intent to begin producing aircraft with at least 6 years of
development remaining suggest that the JSF does not yet have the knowledge
to justify future investments. In addition to highlighting specific F/A-22
and JSF program issues, I will discuss the implications these development
programs have on DOD's overall investment strategy for modernizing the
tactical fixed-wing aircraft.

My statement is primarily based on our recent reports on the F/A-22 and
JSF programs.2 We performed the work associated with this statement in
accordance with generally accepted government auditing standards.

The F/A-22 has been in development for 19 years, and cost increases and
delays have created affordability concerns that reduced the number of
aircraft planned for acquisition. A changing world environment and threats
over this time frame have compelled the Air Force to plan for large
investments in new capabilities to keep the F/A-22 viable. Termination of
F/A-22 procurement after fiscal year 2008 has also placed modernization

1The third major program, the FA-18EF, currently in production, is not a
subject of this testimony.

2GAO, Tactical Aircraft: Status of the F/A-22 and JSF Acquisition Programs
and Implications for Tactical Aircraft Modernization, GAO-05-390T
(Washington, D.C.: Mar. 3, 2005; GAO, Tactical Airlift: Air Force Still
Needs Business Case to Support F/A-22 Quantities and Increased
Capabilities, GAO-05-304 (Washington, D.C.: Mar. 15, 2005); and GAO
Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike Fighter
Program with Different Acquisition Strategy, GAO-05-271 (Washington, D.C.:
Mar. 15, 2005).

  Summary

plans in doubt. The original business case elements-needs and
resources--set at the outset of the program are no longer valid, and a new
business case is needed to justify future investments for aircraft
quantities and modernization efforts. The F/A-22's acquisition approach
was not knowledge-based or evolutionary. It attempted to develop
revolutionary capability in a single step, causing significant technology
and design uncertainties and, eventually, significant cost overruns and
schedule delays. Lessons from the F/A-22 program can be applied to the JSF
program to improve on its outcomes.

While relatively early in its acquisition program, the JSF program has
experienced design and weight problems that, if not solved, will affect
aircraft performance. These problems have led to increased development and
procurement costs and schedule delays so far. In addition, the program's
customers are still not sure how many aircraft they will need. The
combination of cost overruns and quantity reductions has already diluted
DOD's buying power and made the original JSF business case unexecutable.
Given continuing program uncertainties, DOD could use more time right now
to gain knowledge before it commits to a new business case for its
substantial remaining investments. The JSF's current acquisition strategy
does not embrace evolutionary, knowledge-based techniques intended to
reduce risks. Key decisions, like the planned 2007 production decision,
are expected to occur before critical knowledge is captured. Time taken
now to gain knowledge will avoid placing sizable investments in production
capabilities at risk to expensive changes.

Taken together, the current status and continuing risk in these two
programs have broader implications to the DOD tactical fixed-wing aircraft
modernization program, raising questions as to whether its overarching
goals are now achievable. Decreases in quantities alone- about 30 percent
since original plans-raise questions about how well the aircraft will
complement our tactical air forces in the future.

The F/A-22 aircraft program is acquiring the Air Force's next generation,
multimission fighter for about $63.8 billion.3 The continued need for the
F/A-22, its increasing costs, and the quantities required to perform its

3This amount consists of $61.3 billion currently budgeted for the basic
program and the initial stages of the modernization efforts, $1.3 billion
for future start-up costs of a separate acquisition program for the latter
stages of modernization, and $1.2 billion in costs to retrofit aircraft
with enhanced capabilities and activate depot maintenance activities.

  Background

mission have been the subject of a continuing debate within DOD and
Congress. Supporters cite the F/A-22's advanced features-stealth,
supercruise speed, maneuverability, and integrated avionics-as integral to
the Air Force's Global Strike initiative and for maintaining air
superiority over potential future adversaries for years to come.4 Critics,
on the other hand, argue that the Soviet threat the F/A-22 was originally
designed to counter no longer exists and that its remaining budget dollars
could better be invested in enhancing current air assets and acquiring new
and more transformational capabilities that will allow it to meet evolving
threats. The debate continues as a December 2004 budget decision by the
Office of the Secretary of Defense (OSD) reduced F/A-22 funding and the
number of aircraft to be acquired. A full-rate production decision is
expected in early April, but the Air Force already has 98 aircraft on
contract.5

The JSF program is DOD's most costly aircraft acquisition program. The
program's goals are to develop and field more than 2,400 stealthy strike
fighter aircraft for the Navy, Air Force, and Marine Corps and potentially
several hundred more aircraft for U.S. allies. International participation
in the development of this system is a vital part of the acquisition
strategy. The JSF is intended to provide greater capability and to replace
DOD's aging fighter and attack aircraft. DOD estimates that the total cost
to develop and procure its fleet of aircraft will reach $245 billion, with
total costs to maintain and operate the JSF adding another $344 billion
over its life cycle. Since the program began in November 1996, it has
experienced technical challenges that have resulted in significant cost
increases and schedule overruns. During most of 2004, the program worked
to understand and define current development risks in order to prepare
more accurate cost and delivery estimates to support development and
production investment decisions planned over the next 2 years.

A key to successful acquisition programs is the development of a business
case that should match requirements with resources-proven technologies,
sufficient engineering capabilities, time, and funding--when

4Global Strike is one of six complementary concepts of operations laying
out the Air Force's ability to rapidly plan and deliver limited-duration
and extended attacks against targets.

5The Defense Acquisition Board met in late March of this year to discuss
the F/A-22's progress and readiness for full-rate production. A final
decision by the milestone decision authority is expected in early April.

  A New Business Case Is Needed to Justify Continued Investment in the F/A-22
  Program

undertaking a new product development. First, the user's needs must be
accurately defined, alternative approaches to satisfying these needs must
be properly analyzed, and quantities needed for the chosen system must be
well understood. The developed product must be producible at a cost that
matches the users' expectations and budgetary resources. Finally, the
developer must have the resources to design and deliver the product with
the features that the customer wants and to deliver it when it is needed.
If the financial, material, and intellectual resources to develop the
product are not available, a program incurs substantial risk in moving
forward.

Since its inception in 1986, the F/A-22 aircraft program has encountered
numerous and continuing management and technical challenges. Changing
threats, missions, and requirements have severely weakened the original
business case. Program milestones have slipped substantially; development
costs have more than doubled; and a modernization program was added. The
recent budget decision to terminate procurement after fiscal year 2008,
the prospect of additional cuts because of ceilings on program cost, and
upcoming defense reviews have significant implications for the program's
viability and the future of modernization efforts.

In March 2004, we reported that the significant changes in the F/A-22's
cost, quantity, capabilities, and mission and the persistent problems and
delays in its development and testing schedules called for a new business
case to justify the continued need for the F/A-22.6 We recommended that
OSD direct the Air Force to consider alternatives and examine the
constraints of future defense spending. In subsequent testimony, we
reiterated this position, stating that competing priorities-both internal
and external to DOD's budget-require a sound and sustainable business case
for DOD's acquisition programs based on comprehensive needs assessments
and a thorough analysis of available resources.7 In response to our
recommendation, DOD stated its routine budgeting processes annually
addressed business case issues on the F/A-22. We disagreed, as we do not
think those processes provide the breadth or depth of analysis needed to
develop a comprehensive new business case.

6GAO, Tactical Aircraft: Changing Conditions Drive Need for New F/A-22
Business Case, GAO-04-391 (Washington, D.C.: Mar. 15, 2004).

7GAO, Tactical Aircraft: Status of the F/A-22 and Joint Strike Fighter
Programs, GAO-04-597T (Washington, D.C.: Mar. 25, 2004).

Problems in the F/A-22 Program Strain Future Viability

When initiated, the F/A-22 acquisition program planned to complete
development in 1995, achieve initial operational capability by March 1996,
and ultimately procure 750 aircraft. The Air Force currently plans to
complete system development in 2005, achieve initial operational
capability by December 2005, and procure 178 aircraft.

Amidst concerns about escalating costs and schedule, the Congress placed
cost limitations on both development and production budgets in 1997,8
later removing the development cost cap.9 According to the Air Force, the
current production cost cap is $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, and 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.10 The December
2004 budget decision also ended procurement in fiscal year 2008, instead
of fiscal year 2011.

Decreased procurement quantities, along with increased development and
production costs and increased costs to modernize and enhance capability,
have led to rising acquisition unit costs. Figure 1 illustrates the
downward trend in procurement quantities and the upward trend in program
acquisition unit costs.11

8Pub. L. No. 105-85 (Nov. 18, 1997), section 217.

9Pub. L. No. 107-107 (Dec. 28, 2001), section 213.

10Program 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 crash of an F/A-22 has reduced planned operational aircraft to
177.

11Program 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.

Figure 1: Quantity and Program Acquisition Unit Cost of F/A-22s

In arguing for reversal of the December 2004 budget decision to stop
procurement of the F/A-22 in 2008, Air Force officials noted that the
decision obviates production economies and efficiencies that the Air Force
expected to achieve through a multiyear procurement contract that was to
begin in fiscal year 2008. Officials also stated that cutting production
quantities from the final years of the program limits expected savings in
annual unit procurement costs. As with many DOD acquisitions, Air Force
program officials had assumed in future budgets that the costs for buying
F/A-22s would decrease as a result of manufacturing efficiencies, reduced
fixed costs, productivity projects, and more economical buying quantities.
For example, 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.12 Now that the program will be
truncated in 2008, the less expensive aircraft in 2009 and beyond will not
be bought and unit costs are now projected at $135 million in 2007 and
$149 million in 2008 (increases associated with close-out of production).

The F/A-22 program changes have also resulted in schedule delays for
completing development testing, operational testing, and, consequently,
the full-rate production decision. That decision is currently expected
later this month but could slip again given the unsettled environment. One
critical input to the decision is the report by the Office of the Director
of Operational Test and Evaluation to the Congress and defense leadership
on the adequacy and results of the recently completed initial operational
test and evaluation.13 In addition, the F/A-22 program must demonstrate it
satisfies criteria established by the Defense Acquisition Board in
November 2004, which include delivering a fully resourced plan for
followon testing to correct deficiencies identified in initial operational
testing and evaluation, achieving design stability of the avionics
software, demonstrating mature manufacturing processes, and validating
technical

14

order data.

Final reports detailing the results from initial operational testing and
evaluation were not available for our review, but Air Force test officials
told us that testing showed the F/A-22 was "overwhelmingly effective" as
an air superiority fighter and that its supporting systems were
"potentially suitable" pending the correction of identified deficiencies.
Operational testing of the limited ground attack capability in the current
design was not conducted but is scheduled during follow-on testing planned
to start in

12Average 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.

13Statute 10 U.S.C. 2399 provides that a major defense acquisition program
may not proceed beyond low-rate initial production until initial
operational test and evaluation is completed and the congressional defense
committees have received the report of testing results from the Director
of Operational Test and Evaluation. This report is to contain an opinion
of test adequacy and whether the test results confirm that the system
actually tested is operationally effective and suitable for combat.

14The F/A-22 initial operational test and evaluation was conducted by the
Air Force Operational Test and Evaluation Center from April through
December 2004 to support the full-rate production decision. Its
operational test plan was designed to assess the F/A-22's combat
effectiveness and suitability in an operationally representative
environment.

July 2005.15 Air Force officials believe that test results support
approval of full-rate production. They also believe that deficiencies
identified in aircraft reliability and maintainability (including
maintaining low observable characteristics) and in the integrated
diagnostic systems are readily correctible and the aircraft should meet
the needs of the warfighter by the scheduled initial operational
capability date in December 2005. However, whether the Air Force can
accomplish all of this by December 2005 remains to be seen.

Future of Modernization Plans in Doubt

Originally, the F/A-22 was intended to replace the F-15 and achieve
air-toair superiority to counter large numbers of advanced Soviet fighters
in conventional warfare. However, over the 19 years that the aircraft has
been in development, the projected Cold War threats never materialized and
new threats emerged, changing tactical fighter requirements and
operational war plans. The Air Force now plans to implement a Global
Strike concept of operations by developing a robust air-to-ground attack
capability to allow the aircraft to counter a greater variety of targets,
such as surface-to-air missiles systems, that pose a significant threat to
U.S. aircraft. It also plans to equip most of the F/A-22 fleet with
improved capabilities to satisfy expanded warfighter requirements and to
take on new missions, including intelligence data gathering and the
suppression of enemy air defenses and interdiction.

To implement its Global Strike concept, the Air Force established a
timephased modernization program. Table 1 shows how the Air Force intended
to integrate new capabilities incrementally before the December 2004
budget decision reduced quantities by 96 aircraft. At the time of our
review, officials were still determining the impacts of the budget
decision on the modernization program content and quantities.

15Air-to-ground attack capabilities are increasingly emphasized by the Air
Force, and future enhancements are planned for 80 percent of the
modernized F/A-22s. More robust ground attack and intelligence gathering
capabilities will be tested in the future as they are developed.

       Table 1: Planned Modernization Enhancements for the F/A-22 Program

Fiscal year when enhancements are expected to be incorporated

                          2007        2011a        2013           2015        
                         Global          Global   Global                      
      Capabilities       Strike          Strike   Strike             Enhanced 
        increment         Basic        Enhanced    Full         Intelligence,
                                                           Surveillance, and  
                                                             Reconnaissance   
     bConfiguration     Block 20     Block 30    Block 40       Block 40      

c

Quantity of F/A-22s 56 91 128

Examples of enhancements Improve capability to Enhance air-to-ground
Increase capability to Add capability for full

to be added launch Joint Direct capability by adding suppress or destroy
the intelligence, Attack Munition at faster improved radar full range of
air surveillance, and speeds and at longer capabilities to seek and
defenses and improve reconnaissance distances; upgrade air-destroy
advanced speed and accuracy of integration for increased to-air
capabilities surface-to-air missile targeting target sets and lethality
systems; integrate additional air-to-ground weapons

Sources: Air Force and Office of Secretary of Defense.

aGlobal Strike Enhanced includes two increments of capability, with the
first increment incorporated in fiscal year 2009 and the second in 2011.

bThe Air Force planned to have three configurations (called blocks) that
included specific enhancements developed in the modernization program.

cThis quantity included in Global Strike Full amount. Total 128 aircraft
planned for block 40.

In March 2003, OSD's Cost Analysis Improvement Group (CAIG) estimated that
the Air Force would need $11.7 billion for the planned modernization
programs through fiscal year 2018.16 The Air Force's latest estimate
includes about $4.1 billion through fiscal year 2011 for the first two
modernization increments (blocks 20 and 30) and about $1.3 billion through
fiscal year 2011 for the latter two increments (block 40). The Air Force
will continue to manage blocks 20 and 30 as part of the F/A-22 acquisition
program. To manage block 40 efforts, OSD has directed the Air Force to
establish a separate modernization program.17 Future modernization costs
beyond 2011 have not been fully definitized and are

16The OSD CAIG acts as the principal advisory body to the milestone
decision authority on program cost. The CAIG estimate included costs for
development, procurement, and retrofit of modernized aircraft.

17In November 2004, the acting Under Secretary of Defense for Acquisition,
Technology and Logistics directed the Air Force to hold separate milestone
reviews for the latter stages of the modernization program to be
consistent with DOD acquisition policy. The Air Force plans to manage
these efforts as a separate acquisition program.

subject to change. The modernization program manager projected annual
funding of $700 to $750 million would be needed for the currently planned
modernization program after 2011.

The December 2004 budget decision places much of the modernization program
in doubt, particularly the latter stages. This is because that decision
terminated F/A-22 procurement after fiscal year 2008 and many of these new
and advanced capabilities had been planned for aircraft that now will not
be bought. Therefore, if the budget cut is sustained, the modernization
program as currently planned is largely obsolete and some funding for
advanced capabilities planned to be incorporated after fiscal year 2008
could be available for other uses. At the time of our review, Air Force
officials were still restructuring the modernization program in response
to the budget decision, including revising the desired mix of capabilities
and the number of aircraft in each configuration. With the reduced
quantity, they are considering having only two configurations, with the
second incorporating some enhancements originally planned for the third
configuration.

The budget decision causes a ripple effect on other resource plans tied to
the modernization. For example, it brings into question the need for (1)
upgrades to the computer architecture and processors estimated to cost
between $400 million and $500 million; (2) upgrades to government
laboratory and test range infrastructure like software avionics
integration labs, flying test beds, and test ranges estimated to cost
about $1.8 billion; and (3) changes in other activities supporting
modernization enhancements in the production line, retrofit of aircraft,
and establishing depot maintenance support estimated at more than $1.6
billion.

Unlike the F/A-22 program, which is near the end of development, the JSF
program is approaching key investment decisions that will greatly
influence the efficiency of the remaining funding-over 90 percent of the
$245 billion estimated total program costs-and determine the risk DOD is
willing to accept. DOD has not been able to deliver on its initial
promise, and the sizable investment greatly raises the stakes to meet
future promises. Given continuing program uncertainties, DOD could use
more time to gain knowledge before it commits to a new business case and
moves forward. Any new business case must be accompanied by an acquisition
strategy that adopts an evolutionary approach to product development-one
that enables knowledge-based decisions to maximize the return on remaining
dollars-as dictated by best practices.

  New JSF Business Case and Acquisition Strategy Is Critical for Program Success

DOD Needs More Time to Develop a New JSF Business Case

Increased program costs, delayed schedules, and reduced quantities have
diluted DOD's buying power and made the original JSF business case
unexecutable. Program instability at this time makes the development of a
new and viable business case difficult to prepare. The cost estimate to
fully develop the JSF has increased by more than 80 percent. Development
costs were originally estimated at roughly $25 billion. By the 2001 system
development decision, these costs increased almost $10 billion, and by
2004, costs increased an additional $10 billion, pushing total development
cost estimates to nearly $45 billion. Current estimates for the program
acquisition unit cost are about $100 million, a 23 percent increase since
2001. Ongoing OSD cost reviews could result in further increases to the
estimated program cost. At the same time, procurement quantities have been
reduced by 535 aircraft and the delivery of operational aircraft has been
delayed. Figure 2 shows how costs, quantities, and schedules have changed
since first estimates based on data as of January 2005.

              Figure 2: Measures of JSF Cost and Schedule Changes

Ongoing program uncertainties-including uncertainties about the aircraft's
design and procurement quantities-make it difficult to understand what
capabilities can be delivered with future investments. For example, DOD
has been working over the past year to restructure the JSF program to
accommodate changes in the aircraft's design; until this restructuring is
completed, it will be difficult to accurately estimate program costs. The
need for design changes largely resulted from the increased weight of the
short takeoff and vertical landing variant and the impact it was having on
key performance parameters. The other JSF variants' designs were affected
as well. The program plans to have a more comprehensive cost estimate in
the spring of 2005. However, a detailed assessment has not been conducted
to determine the impact that the restructured program will have on meeting
performance specifications. Until the detailed design efforts are
complete-after the critical design review in February 2006-the program
will have difficulty assessing the impact of the design changes on
performance. While the program office anticipates that recent design
changes will allow the aircraft to meet key performance parameters, it
will not know with certainty if the weight problems have been resolved
until after the plane is manufactured and weighed in mid-2007.

Program officials are also examining ways to reduce program requirements
while keeping cost and schedules constant. Design and software teams have
found greater complexity and less efficiency as they develop the 17
million lines of software needed for the system. Program analysis
indicated that some aircraft capabilities will have to be deferred to stay
within cost and schedule constraints. As a result, the program office is
working with the warfighters to determine what capabilities could be
deferred to later in the development program or to follow-on development
efforts while still meeting the warfighter's basic needs. It may be some
time before DOD knows when and what capabilities it will be able to
deliver. The content and schedule of the planned 7-year, 10,000hour flight
test program is also being examined. According to the program office, the
test program was already considered aggressive, and recent program changes
have only increased the risks of completing it on time.

Finally, uncertainty about the number and mix of variants the services
plan to purchase will also affect JSF's acquisition plans. While the Air
Force has announced its intention to acquire the short takeoff and
verticallanding variant, it has yet to announce when or how many it
expects to buy or how this purchase will affect the quantity of the
conventional takeoff and landing variant it plans to buy. The number and
mix of JSF variants that the Navy and Marine Corps intend to purchase-and
their

related procurement costs-also remain undetermined. Foreign partners have
expressed intent to buy about 700 aircraft between 2012 and 2015, but no
formal agreements have been signed at this time. The 2005 Quadrennial
Defense Review-an examination of U.S. defense needs- could also affect the
procurement quantities and schedule. In developing a reliable business
case, knowing the quantities to be purchased is equally as important as
other elements. Without knowing types and quantities the program manager
cannot accurately estimate costs or plan for production.

Timely Capture of Product Knowledge Needed to Support Future Business
Decisions

In recent years, DOD has revised its weapons acquisition policy to support
an evolutionary, knowledge-based strategy based on best practices-key to
executing a future business case and making more informed business
decisions.18 With an evolutionary acquisition approach, new products are
developed in increments based on available resources. Design elements that
are not currently achievable are planned for and managed as separate
acquisitions in future generations of the product with separate
milestones, costs, and schedules. While JSF's acquisition strategy calls
for initially delivering a small number of aircraft with limited
capabilities, the program has committed to deliver the full capability by
the end of system development and demonstration in 2013 within an
established cost and schedule for a single increment, contrary to an
evolutionary approach.

In addition, JSF's planned approach will not capture adequate knowledge
about technologies, design, and manufacturing processes for investment
decisions at key investment junctures. Our past work has shown that to
ensure successful program outcomes, a high level of demonstrated knowledge
must be attained at three key junctures for each increment in the program.
Table 2 compares best practice and JSF knowledge expectations at each
critical point.

18DOD Directive 5000.1, The Defense Acquisition System (May 2003); DOD
Instruction 5000.2, Operation of the Defense Acquisition System (May
2003). The directive establishes evolutionary acquisition strategies as
the preferred approach to satisfying DOD's operational needs. The
directive also requires program managers to provide knowledge about key
aspects of a system at key points in the acquisition process.

       Table 2: Knowledge Attainment on JSF Program at Critical Junctures

Best practice Knowledge point 1 Knowledge point 2 Knowledge point 3

Should be achieved at Should be achieved by the design Should be achieved
by the start of development start. review. production.

Separate technology and product Completion of 90 percent of development,
deliver mature engineering drawing packages for technology, and have
preliminary structures and systems, critical design based on systems
design review completed, and engineering principles. design prototyped.

JSF practice 	Knowledge point 1 was not Knowledge point 2 will not be
attained at milestone B in 2001. attained by design review in

100 percent of critical manufacturing processes under statistical control,
demonstration of a fully integrated product in its operational environment
to show it will work as intended, and reliability goals demonstrated.

Knowledge point 3 will not be attained by start of production in 2007
under current plan.

2006 under current plan.

Failed to separate technology and The program estimates 35 percent Program
does not expect to product development. Critical of the engineering
drawing demonstrate that the critical technologies not mature and packages
are expected to be processes are under statistical sound preliminary
design not released at the critical design control until 2009. Program
established. Several technologies reviews. Also, prototype testing expects
to demonstrate that a fully not expected to be mature until will not be
done prior to the design integrated aircraft will work as after production
begins. review. The design will not be intended and meets reliability

stable until after production goals in 2010-2012 timeframe.

begins.

Source: GAO data and analysis of DOD data

As shown in table 2, the JSF program will lack critical production
knowledge when it plans to enter low-rate initial production in 2007. The
department has included about $152.4 million in its fiscal year 2006
budget request to begin long lead funding for low-rate initial production.
This production decision is critical, and the knowledge required to be
captured by knowledge point 3 in our best practice model should be
achieved before this critical juncture is reached. If production begins
without knowledge that the design is mature, critical manufacturing
processes are under control, and reliability is demonstrated, costly
changes to the design and manufacturing processes can occur, driving up
costs and delaying delivery of the needed capability to the warfighter.
The size of the potential risk is illustrated in the production ramp-up
and investments planned after this decision is made. Between 2007 (the
start of low-rate production) and 2013 (the scheduled start of full-rate
production) DOD plans to buy nearly 500 JSF aircraft-20 percent of its
planned total buys- at a cost of roughly $50 billion. Under the program's
preliminary plan, DOD expects to increase low-rate production from 5
aircraft a year to 143 aircraft a year, significantly increasing the
financial investment after

production begins.19 Between 2007 and 2009, the program plans to increase
low-rate production spending from about $100 million a month to more than
$500 million a month, and before development has ended and an integrated
aircraft has undergone operational evaluations, DOD expects to spend
nearly $1 billion a month.

To achieve its production rate, the program will invest significantly in
tooling, facilities, and personnel. According to contractor officials, an
additional $1.2 billion in tooling alone would be needed to ramp up the
production rate to 143 aircraft a year. Over half of this increase would
be needed by 2009-more than 2 years before operational flight testing
begins. Figure 3 shows the planned production ramp up, along with the
concurrently planned development program for the JSF.

19The preliminary plan was what was being considered at the time of our
review. Since then, in its fiscal year 2006 budget submission, DOD has
reduced the planned procurement quantities for the U.S. by 38 aircraft
through fiscal year 2011. This includes planned quantities for the United
Kingdom of 2 aircraft in fiscal year 2009, 4 aircraft in fiscal year 2010;
9 aircraft in fiscal year 2011, 9 aircraft in fiscal year 2012, and 10
aircraft in fiscal year 2013.

Figure 3: Overlap of JSF Low-Rate Production and System Development and
Demonstration Activities (Includes U.S. and U.K. Quantities)

Following are examples of technology, design, and production knowledge
that should be but will not be captured when the low-rate production
decision is scheduled to be made.

o  	Only one of JSF's eight critical technologies is expected to be
demonstrated in an operational environment by the 2007 production
decision.

o  	Only about 40 percent of the 17 million lines of code needed for the
system's software will have been released, and complex software needed to
integrate the advanced mission systems is not scheduled for release until
about 2010-3 years after JSF is scheduled to enter production. Further,
most structural fatigue testing and radar cross section testing of full-up
test articles are not planned to be completed until 2010.

o  	The program will not demonstrate that critical manufacturing processes
are in statistical control, and flight testing of a fully configured and
integrated JSF (with critical mission systems and prognostics
technologies) is not scheduled until 2011.

Further, because of the risk created by the extreme overlap of development
and production, the program office plans to place initial production
orders on a cost reimbursement contract, placing a higher cost risk burden
on the government than is normal. These contracts provide for payment of
allowable incurred costs, to the extent prescribed in the contract. They
are used when uncertainties involved in contract

performance do not permit costs to be estimated with sufficient accuracy
to use any type of fixed-price contract and place greater cost risk on the
buyer-in this case, DOD. In the case of the JSF, a fixed-price contract
will not be possible until late in the development program.

  JSF's Substantial Funding Requirements May Be Difficult to Sustain in the
  Current Fiscal Environment

Regardless of likely increases in program costs, the sizable continued
investment in JSF must be viewed within the context of the fiscal
imbalance facing the nation over the next 10 years. The JSF program will
have to compete with many other large defense programs as well as other
priorities external to DOD's budget. JSF's acquisition strategy assumes an
unprecedented $225 billion in funding over the next 22 years or an average
of $10 billion a year (see fig. 4).20

20This is based on DOD's December 2003 JSF cost estimate.

Figure 4: JSF Program's Annual Funding Requirements (as of December 2003)

Funding challenges will be even greater if the program fails to stay
within current cost and schedule estimates. For example, we estimate that
another 1-year delay in JSF development would cost $4 billion to $5
billion based on current and expected development spending rates. A
10-percent increase in production costs would amount to $20 billion.

  Implications for the Current Status of Tactical Aircraft Programs

Continuing changes and uncertainties in the F/A-22 and JSF programs
present significant challenges to DOD in achieving its modernization plans
which attempt to blend many factors within affordability constraints.
Factors in the decision making process can include aircraft age, ownership
costs, readiness, force structure, operating concepts, competing needs,
available funds, defense policy, and others.21 Today, both F/A-22 and JSF
programs include significantly fewer aircraft than originally planned--30
percent fewer or over 1,000 aircraft. Deliveries intended to provide an
operational capability have also been delayed in both programs, almost 10
years in the case of the F/A-22, requiring legacy systems to operate
longer than planned. As legacy tactical aircraft age and near the end of
their useful life, they require ever increasing investments to keep them
ready and capable as the threat evolves-the cost of ownership.

The reduced F/A-22 force size, now fewer than 180 F/A-22 aircraft instead
of 750 aircraft planned at the start of the program, could affect the Air
Force's force structure and employment strategy. The Air Force still
maintains it has a nominal requirement for 381 aircraft to meet its new
Air and Space Expeditionary Forces-the operational mechanism through which
the Air Force allocates forces to meet the combatant commanders' force
rotation requirements-and Global Strike concept of operations. The Air
Force planned on 10 F/A-22 squadrons to support this operational concept.
Using the Air Force's normal methods for calculating force requirements,
only about 110 aircraft of the total aircraft procured would be classified
as available for combat and assignment to operational units22-yielding
only 4 or 5 typical fighter squadrons for assigning across the planned 10
air and space expeditionary units. The reduced fleet size may require the
Air Force to consider the F/A-22 as a low-density/highdemand asset, which
would require changes in these expected management and employment
strategies. It also has implications for related resources and plans,
including military personnel requirements, numbers of operating locations,
support equipment, spare parts, and logistical support mechanisms.

21GAO, Tactical Aircraft: Modernization Plans Will Not Reduce Average Age
of Aircraft, GAO-01-163 (Washington, D.C.: Feb. 9, 2001). Today
acquisition plans include 3,083 aircraft (F/A-22, FA-18EF, and JSF). The
Air Force has been discussing buying fewer JSF, which would further lower
the amount of planned new tactical aircraft.

22The remaining aircraft are used for training and development activities
and to account for aircraft in for maintenance and those held in reserve
for normal attrition.

Other factors will come to play in the 2005 Quadrennial Defense Review.
OSD has directed the review to include an assessment of joint air
dominance in future warfare and the contributions provided by all tactical
aircraft. An announced defense policy goal is to redirect investment from
areas of conventional warfare, where the United States enjoys a strong
combat advantage, toward more transformational capabilities needed to
counter "irregular" threats, such as the insurgency in Iraq and the
ongoing war on terror. DOD is also conducting a set of joint capability
reviews to ensure acquisition decisions are based on providing integrated
capabilities rather than focused on individual weapons systems. The study
results, although still months away, could further affect the future of
the F/A-22 and JSF programs including the F/A-22's modernization plan. In
these analyses, the new tactical aircraft will also have to compete for
funding, priority, and mission assignments with operational systems, such
as the F15 and F/A-18, and other future systems, such as the Joint
Unmanned Combat Air Systems.

The 2005 Quadrennial Defense Review provides an opportunity for DOD to
assess tactical fixed-wing aircraft modernization plans and weigh options
for accomplishing its specific as well as overarching tactical aircraft
goals. It is critical that their investment be well-managed and balanced
against DOD's other priorities. Through the review, DOD can seek answers
to overall investment strategy questions:

o  What is the role of tactical aircraft in relation to other defense
capabilities?

o  	Will planned investments in tactical aircraft allow DOD to achieve
these capabilities and overall transformational goals?

o  	Where disconnects exist between goals and expected investment
outcomes, what are the impacts and how will DOD compensate to minimize
future security and investment risks?

If DOD fails to answer these questions and continues with its current
modernization strategy, it will likely arrive in the future with needs
similar to those that exist today but with fewer options and resources to
resolve those needs. As DOD evaluates its tactical aircraft investment
alternatives, knowledge at the program level is needed to understand how
the F/A-22 and JSF can help achieve overall tactical aircraft
modernization goals. More specific questions need to be answered for these
programs including:

o  	Is the F/A-22 the most cost-effective alternative to fill gaps in
ground attack and intelligence-gathering requirements?

o  	How many F/A-22s are needed and affordable to carry out the aircraft's
original mission, air superiority, and new ground attack and intelligence
gathering missions?

o  	If requirements for the new F/A-22 capabilities are legitimate and not
solvable by other means, does the Air Force have the resources (mature
technologies, design knowledge, time, and money) to begin investments in a
new development program for the F/A-22 enhancements?

o  	What is the immediate need for JSF aircraft? Delivery of its ultimate
capability or replacing aging aircraft with an initial capability? Does
the acquisition plan satisfy this need?

o  	Does the program have the required knowledge about needed quantities
and capabilities and resources (mature technologies, design knowledge,
time, and money) to develop a reliable business case at this time?

o  	Does DOD have the right acquisition strategy to develop and produce a
JSF that will maximize its return on the more than $220 billion investment
that remains in this program?

While the JSF program started off with a higher-risk approach by starting
system development with immature technologies, now is the time to
implement an evolutionary and knowledge-based acquisition strategy to
manage the system development phase and stabilize the design before making
large investments in tooling, labor, and facilities to test and
manufacture the aircraft. The JSF is relatively early in its system
development and demonstration phase and has an opportunity to learn from
the F/A-22 program experience. It must take the time needed now to gather
knowledge needed to resolve key issues that could ultimately result in
additional cost increases, delays, and performance problems.

Our March 2005 reports on the F/A-22 and JSF made recommendations to the
Secretary of Defense that would require answering some of these questions
before making significant additional investments. For the F/A-22, we
recommended that a new business case be made to justify investments in new
capabilities and the quantities needed to satisfy mission requirements.
For the JSF, we recommended the establishment of an executable program
consistent with policy and best practices, including an affordable first
increment with its own business case, and the implementation of a
knowledge-based acquisition approach to guide future investments and
reduce risks.

  Contacts and Staff Acknowledgments

(120439)

Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions that you or other members of the Subcommittee may
have.

For future questions about our work on the F/A-22 or JSF, please call me
or Michael J. Hazard at (202) 512-4841. Other individuals making key
contributions to this statement include Michael W. Aiken, Marvin E.
Bonner, Lily J. Chin, Matthew T. Drerup, Bruce D. Fairbairn, Steven M.
Hunter, Matthew B. Lea, David R. Schilling, and Adam Vodraska.

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