Tactical Aircraft: Recapitalization Goals Are Not Supported by	 
Knowledge-Based F-22A and JSF Business Cases (28-MAR-06,	 
GAO-06-523T).							 
                                                                 
The Department of Defense's (DOD) F-22A and Joint Strike Fighter 
(JSF) programs aim to replace many of the Department's aging	 
tactical fighter aircraft--many of which have been in DOD's	 
inventory for more than 20 years. Together, the F-22A and JSF	 
programs represent a significant investment for DOD--currently	 
estimated at almost $320 billion. GAO has reported on the poor	 
outcomes in DOD's acquisitions of tactical aircraft and other	 
major weapon systems. Cost and schedule overruns have diminished 
DOD's buying power and delayed the delivery of needed		 
capabilities to the warfighter. Last year, GAO testified that	 
weaknesses in the F-22A and JSF programs raised questions as to  
whether DOD's overarching tactical aircraft recapitalization	 
goals were achievable. GAO is providing updated testimony on (1) 
the extent to which the current F-22A and JSF business cases are 
executable, (2) the current status of DOD's tactical aircraft	 
recapitalization efforts, and (3) potential options for 	 
recapitalizing the air forces as DOD moves forward with its	 
tactical aircraft recapitalization efforts.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-523T					        
    ACCNO:   A50159						        
  TITLE:     Tactical Aircraft: Recapitalization Goals Are Not	      
Supported by Knowledge-Based F-22A and JSF Business Cases	 
     DATE:   03/28/2006 
  SUBJECT:   Cost overruns					 
	     Defense capabilities				 
	     Defense procurement				 
	     Fighter aircraft					 
	     Investment planning				 
	     Military aircraft					 
	     Procurement planning				 
	     Risk management					 
	     Schedule slippages 				 
	     Strategic planning 				 
	     Tactical air forces				 
	     Weapons systems					 
	     A-10 Aircraft					 
	     AV-8B Aircraft					 
	     B-2A Aircraft					 
	     Comanche Helicopter				 
	     Eagle Aircraft					 
	     F-15 Aircraft					 
	     F-16 Aircraft					 
	     F-22 Aircraft					 
	     F-22 Raptor Aircraft				 
	     F-35 Aircraft					 
	     F/A-18 A/C/D Aircraft				 
	     F/A-18 E/F Aircraft				 
	     Harrier Aircraft					 
	     Hornet Aircraft					 
	     Joint Strike Fighter				 
	     RAH-66 Helicopter					 
	     Thunderbolt Aircraft				 
	     Joint Strike Fighter program			 

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GAO-06-523T

     

     * Summary
     * Background
     * F-22A and JSF Acquisition Business Cases Still Include Con
          * Matching F-22A Requirements and Resources Is Crucial to Fut
          * JSF Business Case Still Contains Cost and Schedule Risks
     * DOD's Tactical Aircraft Recapitalization Goals Are Not Being
     * DOD Has an Opportunity to Set Its Tactical Aircraft Recapita
     * GAO Related Products
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

GAO

For Release on Delivery Expected at 2:30 p.m. EST

Tuesday, March 28, 2006

Testimony before the Subcommittee on AirLand, Committee on Armed Services,
U.S. Senate

TACTICAL AIRCRAFT

Recapitalization Goals Are Not Supported by Knowledge-Based F-22A and JSF
Business Cases

Statement of Michael Sullivan, Director

Acquisition and Sourcing Management

GAO-06-523T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to participate in the subcommittee's hearing
on the Department of Defense's (DOD) tactical air forces, including two of
its major tactical aircraft fighter programs-the F-22A 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 together represent a significant
investment-currently estimated at almost $320 billion-for DOD. To date
nearly $75 billion has been appropriated for these programs, and based on
current plans, they represent a potential future investment of about $245
billion over the next 20 years. In fiscal year 2007 alone, the budget
request under consideration for these programs represents over $8 billion.
Given the large potential investment that the F-22A and JSF programs
represent, decisions based on fact and knowledge about needs and resources
are key to ensure that sound program investments are made.

Any discussion of the significance of DOD's investment in these two weapon
systems demands that they be placed in the larger context. Fiscal
imbalances and competing national needs will continue to constrain
discretionary spending for years to come. Over the past 5 years, the
department has doubled its planned investments in new weapon systems from
about $700 billion in 2001 to nearly $1.4 trillion in 2006. At the same
time, research and development cost growth on new weapons continues to be
about 30 to 40 percent. This is how one must view major new investments,
such as the F-22A and JSF, because more money may not be an option for the
future. Rather, the key to getting better outcomes is to make individual
programs more executable.

We have reported and testified in the past on the disappointing outcomes
of DOD's acquisitions of tactical aircraft and other major weapon systems
(see GAO Related Products). DOD's budgeting plans and the reality of the
costs of its systems have been vastly different. Performance-if defined as
the capability that actually reaches the warfighter-tends to fall short of
expectations, as cost increases often result in late deliveries of smaller
quantities of weapon systems. DOD has lost opportunities and buying power
in the process. Last year, we testified that weaknesses in the F-22A and
JSF programs raised questions as to whether DOD's overarching tactical
aircraft recapitalization goals were achievable.2

1The third major program, the F/A-18E/F, currently in production, is not a
subject of this testimony.

My testimony today focuses on (1) the extent to which the current F-22A
and JSF business cases are executable, (2) the current status of DOD's
tactical aircraft recapitalization efforts, and (3) potential options for
recapitalizing the air forces as DOD moves forward with its tactical
aircraft recapitalization efforts. We performed our work in accordance
with generally accepted government auditing standards.

                                    Summary

DOD currently does not have an executable business case for buying the
F-22A. Over the 19 years that the aircraft has been in development, the
world has changed and the capabilities the Air Force once needed and
planned for the F-22A no longer satisfy today's needs. The Air Force's
current stated need is for 381 F-22As to satisfy original air-to-air
missions and recently added requirements for more robust air-to-ground
attack and intelligence-gathering capabilities. However, because of past
cost overruns and current budget constraints, DOD can now afford only 183
F-22As. This leaves a 198-aircraft gap between the Air Force's stated need
and what the acquisition process is able to deliver. DOD's business case
for the JSF program still includes significant cost and schedule risk that
continues to jeopardize timely recapitalization of the tactical force. We
recently reported that DOD plans to begin procuring large quantities of
aircraft in 2007 with less than 1 percent of the flight test program
completed.3 By 2010, it expects to have procured 126 aircraft with only 35
percent of the flight test program completed. Concurrently testing and
procuring the aircraft adds to the program's cost and schedule risks,
further weakening DOD's buying power and jeopardizing its ability to
recapitalize its aging tactical air force in a timely and efficient
manner.

As there were last year at this time, there are many unanswered questions
about whether DOD can achieve its overarching goals for modernizing its
aging tactical air forces. In recent testimony on the results of the
department's 2006 Quadrennial Defense Review (QDR), the Secretary of
Defense stated that continued U.S. air dominance depends on a
recapitalized fleet. However, DOD's 2006 QDR report, issued last month,
did not present a detailed investment strategy for tactical aircraft
systems that addressed needs, capability gaps, alternatives, and
affordability. Lacking a strategy that identifies capability gaps and
affordable alternatives, DOD cannot reasonably ensure that new tactical
air capabilities will be delivered to the warfighter within cost and
schedule targets. Right now, DOD plans to replace legacy aircraft with
about 1,400 fewer new major tactical systems than it had originally
planned-almost a one-third reduction in quantities. Additionally, delivery
of these new systems has lagged far behind original plans, increasing
operating costs to keep legacy aircraft relevant and in the inventory
longer than expected and delaying delivery of needed capabilities to the
warfighter.

2GAO, Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications
for Tactical Aircraft Modernization, GAO-05-519T (Washington, D.C.: Apr.
6, 2005).

3GAO, Joint Strike Fighter: DOD Plans to Enter Production before Testing
Demonstrates Acceptable Performance, GAO-06-356 (Washington D.C.: March
15, 2006).

Despite these substantial setbacks, we believe DOD can reduce cost risk on
its current acquisitions and deliver needed capabilities more quickly.
This could allow it to recapitalize the aging tactical air force sooner
and reduce costs to maintain the current inventory. To do so, however, DOD
must rethink the business cases for the F-22A and JSF programs. Before
procuring more F-22A aircraft, the Air Force and the Office of the
Secretary of Defense should agree on a business case for the appropriate
quantity of F-22A aircraft that (1) satisfies current Air Force needs and
(2) is affordable given today's budget realities. The JSF acquisition
program can reduce cost and schedule risks by adopting a new
knowledge-based business case. The JSF program should delay production and
investments in production capability until the aircraft design qualities
and integrated mission capabilities of the fully configured and integrated
JSF aircraft variants have been proven to work in flight testing. DOD
should also develop a knowledge-based business case that matches
requirements with proven technologies, design knowledge, and available
funding. Capabilities that demand technological advances which are not yet
demonstrated should be part of future increments that are funded and
managed separately once demonstrated. With such an approach DOD could
enter low-rate production sooner and deliver a useful product in
sufficient quantities to start replacing DOD's aging tactical aircraft
force. The F-16 acquisition program provides strong precedent for this
type of acquisition strategy. It began delivering aircraft in 4 years and
within predicted costs. GAO recommended these actions in a recent JSF
report and DOD agreed that these were appropriate things to do but it
believed its current acquisition strategy will allow it to achieve the JSF
program objectives.

Finally, at a broader level, DOD needs to apply more discipline and
controls to establish realistic business cases for acquisition programs
and then execute them more efficiently. This may require a new look at
policies and perhaps statute.

                                   Background

Over the past 20 years, DOD has been engaged in an effort to modernize its
aging tactical aircraft force. The F-22A and JSF, along with the
F/A-18E/F,4 are the central elements of DOD's overall recapitalization
strategy for its tactical air forces. The F-22A was developed to replace
the F-15 air superiority aircraft. The continued need for the F-22A, the
quantities required, and modification costs to perform its mission have
been the subject of a continuing debate within DOD and the Congress.
Supporters cite its 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.5 Critics argue that the Soviet threat it was
originally designed to counter no longer exists and that its remaining
budget dollars could be better invested in enhancing current air assets
and acquiring new and more transformational capabilities that will allow
DOD to meet evolving threats. Its fiscal year 2007 request includes $800
million for continuing development and modifications for aircraft
enhancements such as equipping the F-22A with an improved ground attack
capability and improving aircraft reliability. The request also includes
about $2.0 billion for advance procurement of parts and funding of
subassembly activities for the initial 20 aircraft of a 60-aircraft
multiyear procurement.

JSF is a replacement for a substantial number of aging fighter and attack
aircraft currently in the DOD inventory. For the Air Force, it is intended
to replace the F-16 and A-10 while complementing the F-22A. For the Marine
Corps, the JSF is intended to replace the AV-8B and F/A-18 A/C/D; for the
Navy, the JSF is intended to complement the F/A-18E/F. DOD estimates that
as currently planned, it will cost $257 billion to develop and procure
about 2,443 aircraft and related support equipment, with total costs to
maintain and operate JSF aircraft adding $347 billion over the program's
life cycle. After 9 years in development, the program plans to deliver its
first flight test aircraft later this year. The fiscal year 2007 budget
request includes $4 billion for continuing development and $1.4 billion
for the purchase of the first 5 procurement aircraft, initial spares, and
advance procurement for 16 more aircraft to be purchased in 2008.

4The F/A-18E/F, which began development in 1992, evolved from the F/A-18
aircraft program and has been in production since 1997. Currently, the
program is producing aircraft under its second multiyear contract. Because
of the maturity of the F/A-18E/F program, we did not review it for this
engagement.

5Global 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.

We have frequently reported on the importance of using a sound, executable
business case before committing resources to a new product development. In
its simplest form, such a business case is evidence that (1) the
warfighter's needs are valid and can best be met with the chosen concept
and quantities, and (2) the chosen concept can be developed and produced
within existing resources-that is, proven technologies, design knowledge,
adequate funding, and adequate time to deliver the needed product. At the
heart of a good business case is a knowledge-based strategy to product
development that demonstrates high levels of knowledge before significant
commitments of time and money are made.

F-22A and JSF Acquisition Business Cases Still Include Considerable Risks

The future of DOD's tactical aircraft recapitalization depends largely on
the outcomes of the F-22A and JSF programs-which represent about $245
billion in investments to be made in the future. Yet achieving expected
outcomes for both these programs continues to be fraught with risk. We
have reported that the F-22A's original business case is unexecutable and
does not reflect changing conditions over time. Currently, there is a
significant mismatch between the Air Force's stated need for F-22A
aircraft and the resources the Office of the Secretary of Defense (OSD) is
willing to commit. The business case for the JSF program, which has 90
percent of its investments still in the future, significantly overlaps
production with development and system testing-a strategy that often
results in cost and schedule increases. Both programs are at critical
junctures that require DOD to make important business decisions.

Matching F-22A Requirements and Resources Is Crucial to Future Recapitalization
Investment Decisions

According to the Air Force, a minimum of 381 modernized F-22A aircraft are
needed to satisfy today's national strategic requirements6-a buy that is
roughly half the 750 aircraft originally planned, but more than double the
183 aircraft OSD states available funding can support. Since the Air Force
began developing the F-22A in 1986, the business case for the program has
changed radically- threats have changed, requirements have been added,
costs have increased, funds have been added, planned quantities have been
reduced, and deliveries of the aircraft to the warfighter have been
delayed. There is a 198-aircraft capability gap today. Decisions in the
last 2 years have worsened the mismatch between Air Force requirements and
available resources, further weakening the F-22A program's business case.
Without a new business case, an agreement on an appropriate number of
F-22As for our national defense, it is uncertain as to whether additional
investments in the program are advisable.

The original business case for the F-22A program was to develop air
superiority fighters to counter a projected threat of significant
quantities of advanced Soviet fighters. During the 19-year F-22A
development program, that threat did not materialize to the degree
expected. Today, the requirements for the F-22A have evolved to include
what the Air Force has defined as a more robust ground attack capability
to destroy expected air defense systems and other ground targets and an
intelligence-gathering capability. However, the currently configured F-22A
is not equipped to carry out these roles without further investments in
its development. The F-22As modernization program is currently being
planned for three basic blocks, or spirals, of increasing capability to be
developed and delivered over time. Current Air Force estimates of
modernization costs, from 2007 through 2016, are about $4.3 billion.
Additional modernization is expected, but the content and costs have not
been determined or included in the budget.

OSD has restructured the acquisition program twice in the last 2 years to
free up funds for other priorities. In December 2004, DOD reduced the
program to 179 F-22As to save about $10.5 billion. This decision also
terminated procurement in 2008. In December 2005, DOD changed the F-22A
program again, adding $1 billion to extend production for 2 years to
ensure a next-generation fighter aircraft production line would remain in
operation in case JSF experienced delays or problems. It also added 4
aircraft for a total planned procurement of 183 F-22As. As part of the
2005 change, aircraft previously scheduled in 2007 will not be fully
funded until 2008 or later.

6 The Air Force states a need for one squadron of 24 F-22A aircraft for
each of the 10 Air Expeditionary Forces, the planned organization of the
Air Force aircraft and personnel for operations and deployments. This
equates to 240 aircraft. The remaining 141 aircraft are needed for
training, and attrition, and to allow for periodic depot maintenance
required for each aircraft. The Air Force states that if all 381 aircraft
are acquired, the Air Force could retire about 566 legacy aircraft; if
not, several billions of modification dollars will be required to extend
their structural life to keep them operational.

OSD and the Air Force plan to buy the remaining 60 F-22As in a multiyear
procurement that would buy 20 aircraft a year for 3 years-2008 through
2010. The Air Force plans to fund these aircraft in four increments-an
economic order quantity to buy things cheaper; advanced procurement for
titanium and other materials and parts to protect the schedule;
subassembly; and final assembly. The Air Force plans to provide Congress a
justification for multiyear procurement in May 2006 and the fiscal year
2007 President's Budget includes funds for multiyear procurement. The
following table shows the Air Force's plan for funding the multiyear
procurement. Air Force officials have told us that an additional $400
million in funds are needed to complete the multiyear procurement and that
the accelerated schedule to obtain approval and start the effort adds risk
to the program, creating more weaknesses in the current F-22A business
case.

Table 1: F-22A Proposed Multiyear Procurement Funding

Dollars in millions
                  FY 2006  FY 2007  FY 2008  FY 2009  FY 2010    FY     Total 
                                                               2011 
Lot 7 Buy      
Economic Order            200.0                                      200.0 
Quantity                                                         
Advance          569.2                                               569.2 
Procurement                                                      
Subassembly             1,503.9                                    1,503.9 
Final Assembly                   1,362.4                           1,362.4 
Other Cost                 68.1                                       68.1 
Subtotal        $569.2 $1,772.0 $1,362.4                          $3,703.6 
Lot 8 Buy      
Advance                   277.4                                      277.4 
Procurement                                                      
Subassembly                      1,433.3                           1,433.3 
Final Assembly                            1,342.8                  1,342.8 
Other Cost                          47.4                              47.4 
Subtotal                 $277.4 $1,480.7 $1,342.8                 $3,100.9 
Lot 9 Buy      
Advance                            366.6                             366.6 
Procurement                                                      
Subassembly                               1,515.7                  1,515.7 
Final Assembly                                     1,694.5         1,694.5 
Other Cost                                   48.3     16.2  12.9      77.4 
Subtotal                          $366.6 $1,564.0 $1,710.7 $12.9  $3,654.2 
Total           $569.2 $2,049.4 $3,209.7 $2,906.8 $1,710.7 $12.9 $10,458.7 

Source: DOD data.

Note: Other cost includes funding for modifications and munitions.

A 198-aircraft gap between what the Air Force needs and what is affordable
raises questions about what additional capabilities need to be included in
the F-22A program. In March 2005, we recommended that the Air Force
develop a new business case that justified additional investments in
modernizing the aircraft to include greater ground attack and
intelligence-gathering capabilities before moving forward. DOD responded
to our report that business case decisions were handled annually in the
budget decisions and that the QDR would analyze requirements for the F-22A
and make program decisions. However, it is not clear from the QDR report,
issued last month, what analyses were conducted to determine the gaps in
capability, the alternatives considered, the quantities needed, or the
costs and benefits of the F-22A program. Therefore, questions about the
F-22A program remain:

           o  What capability gaps exist today and will exist in the future
           (air superiority, ground attack, electronic attack, intelligence
           gathering)?
           o  What alternatives besides the F-22A can meet these needs?
           o  What are the costs and benefits of each alternative?
           o  How many F-22As are needed?
           o  What capabilities should be included?

Until these questions are answered and differences are reconciled, further
investments in the program-for either the procurement of new aircraft or
modernization-cannot be justified.

JSF Business Case Still Contains Cost and Schedule Risks

The JSF program appears to be on the same path as the F-22A program. After
being in development for 9 years, the JSF program has not produced the
first test aircraft, has experienced substantial cost growth, has reduced
the number of planned aircraft, and has delayed delivery of the aircraft
to the warfighter. Moreover, the JSF program remains committed to a
business case that invests heavily in production before testing has
demonstrated acceptable performance of the aircraft. At the same time, the
JSF program has contracted to develop and deliver the aircraft's full
capability in a single-step, 12-year development program-a daunting task
given the need to incorporate the technological advances that, according
to DOD, represent a quantum leap in capability. The business case is a
clear departure from the DOD policy preference that calls for adopting an
evolutionary approach to acquisitions. Furthermore, the length and cost of
the remaining development are exceedingly difficult to accurately
estimate, thereby increasing DOD's risks in contracting for production.
With this risky approach, it is likely that the program will continue to
experience significant cost and schedule overruns.

The JSF program expects to begin low-rate initial procurement in 2007 with
less than 1 percent of the flight test program completed and no production
representative prototypes built for the three JSF variants.7 Technologies
and features critical to JSF's operational success, such as a low
observable and highly common airframe, advanced mission systems, and
maintenance prognostics systems, will not have been demonstrated in a
flight test environment when production begins. Other key demonstrations
that will have not been either started or only in the initial stages
before production begins include

7 The JSF aircraft design includes three variants: a conventional takeoff
and landing variant; an aircraft carrier-suitable variant; and a short
takeoff and vertical landing.

           o  testing with a fully integrated aircraft-mission systems and
           full software,
           o  structural and fatigue testing of the airframe, and
           o  shipboard testing of Navy and Marine Corps aircraft.

When the first fully integrated and capable development JSF is expected to
fly in 2011, DOD will already have committed to buy 190 aircraft at an
estimated cost of $26 billion. According to JSF program plans, DOD's
low-rate initial production quantities will increase from 5 aircraft a
year in 2007 to 133 a year in 2013, when development and initial
operational testing are completed.8 By then, DOD will have procured more
than double that amount-424 aircraft at an estimated cost of about $49
billion, and spending for monthly production activities is expected to be
about $1 billion, an increase from $100 million a month when production is
scheduled to begin in 2007. Figure 1 shows the significant overlap in
development and testing and the major investments in production.

8 These figures do not include the potential for orders for international
partners during low-rate initial production. Preliminary data indicate
that these orders could significantly increase this rate.

Figure 1: Overlap of Low-Rate Initial Production Investments and Testing
Demonstrations of the JSF Variants

aFlight testing data reflects the percentage of the total flight tests
completed at the time of the planned investment decision, which is
currently planned for January of each year.

The overlap in testing and production is the result of a business case and
acquisition strategy that has proven to be risky in past programs like
F-22A, Comanche, and B-2A, which far exceeded the cost and delivery goals
set at the start of their development programs. JSF has already increased
its cost estimate and delayed deliveries despite a lengthy replanning
effort that added over $7 billion and 18 months to the development
program. JSF officials have stated that the restructured program has
little or no flexibility for future changes or unanticipated risks. The
program has planned about 8 years to complete significant remaining
activities of the system development and demonstration phase, including

           o  fully maturing 7 of the 8 critical technologies;
           o  completing the designs and releasing the engineering drawings
           for all three variants;
           o  manufacturing and delivering 15 flight test aircraft and 7
           ground test articles;
           o  developing 19 million lines of software code; and
           o  completing a 7-year, 12,000-hour flight test program.

The JSF program's latest planned funding profile for development and
procurement, produced in December 2004 by the JSF program office, assumes
annual funding rates to hover close to $13 billion between 2012 and 2022,
peaking at $13.8 billion in 2013. If the program fails to achieve its
current estimated costs, funding challenges could be even greater than
that. The Office of Secretary of Defense Cost Analysis Improvement Group
was to update its formal independent cost estimate in the spring of 2005.
The group now does not expect to formally complete its estimate until
spring 2006, but its preliminary estimate was substantially higher than
the program office's. A modest cost increase would have dramatic impacts
on funding. For example, a 10 percent increase in production costs would
amount to over $21 billion (see fig. 2).

Figure 2: JSF's Annual Funding Requirements, as of December 2004

DOD has recently made decisions to reduce near-term funding requirements
that could cause future JSF costs to increase. It had begun to invest in
the program to develop an alternative engine for the aircraft, but now
plans to cancel further investments in order to make the remaining funds
available for other priorities. According to DOD, it believes that there
is no cost benefit or savings with an engine competition for the JSF and
there is low operational risk with going solely with a single engine
supplier. DOD has already invested $1.2 billion in funding for this
development effort through fiscal year 2006. By canceling the program, it
expects to save $1.8 billion through fiscal year 2011. Developing
alternative engines is a practice that has been used in past fighter
aircraft development programs like the F-16 and F-15 programs. An
alternative engine program may help maintain the industrial base for
fighter engine technology, result in price competition in the future for
engine acquisition and spare parts, instill incentives to develop a more
reliable engine, and ensure an operational alternative should the current
engine develop a problem that would ground the entire fleet of JSF
aircraft. As result, the JSF decision should be supported by a sound
business case analysis. To date, we have not seen such an analysis.

Finally, the uncertainties inherent in concurrently developing, testing,
and producing the JSF aircraft prevent the pricing of initial production
orders on a fixed price basis. Consequently, the program office plans to
place initial procurement orders on cost reimbursement contracts. These
contracts will provide for payment of allowable incurred costs, to the
extent prescribed in the contract. With cost reimbursement contracts a
greater cost risk is placed on the buyer-in this case, DOD. For the JSF,
procurement should start when risk is low enough to enter into a fixed
price agreement with the contractor based on demonstrations of the fully
configured aircraft and manufacturing processes.

        DOD's Tactical Aircraft Recapitalization Goals Are Not Being Met

DOD has not been able to achieve its recapitalization goals for its
tactical aircraft forces. Originally, DOD had planned to buy a total of
4,500 tactical aircraft to replace the aging legacy force. Today, because
of delays in the acquisition programs, increased development and
procurement costs, and affordability pressures, it plans to buy almost
one-third fewer tactical aircraft (see fig. 3). The delivery of these new
aircraft has also been delayed past original plans. DOD has spent nearly
$75 billion on the F-22A and JSF programs since they began, but this
accounts for only 122 new operational aircraft.

Figure 3: Comparison of Original and Current Procurement Quantities for
the F/A-18E/F, F-22A, and JSF Tactical Aircraft

Because DOD's recapitalization efforts have not materialized as planned,
many aircraft acquired in the 1980s will have to remain in the inventory
longer than originally expected, incurring higher investment costs to keep
them operational. According to DOD officials, these aging aircraft are
approaching the end of their service lives and are costly to maintain at a
high readiness level. While Air Force officials assert that aircraft
readiness rates are steady, they agree that the costs to operate and
maintain its aircraft over the last decade have risen substantially.
Regardless, the military utility of the aging aircraft is decreasing.

The funds used to operate, support, and upgrade the current inventory of
legacy aircraft represent opportunity costs that could be used to develop
and buy new aircraft. From fiscal years 2006 to 2011, DOD plans to spend
about $57 billion9 for operations and maintenance and military personnel
for legacy tactical fighter aircraft. Some of these funds could be
invested in newer aircraft that would be more capable and less costly to
operate. For example, the Air Force Independent Cost Estimate Summary
shows that the F-22A will be less expensive to operate than the F-15. The
F-22A will require fewer maintenance personnel for each squadron, and one
squadron of F-22As can replace two squadrons of F-15. This saves about 780
maintenance personnel as well as about $148 million in annual operating
and support cost according to the independent cost estimate.

Over the same time frame, DOD also plans to spend an average of $1.5
billion each year--or $8.8 billion total-to modernize or improve legacy
tactical fighter aircraft (see fig. 4). Further delays or changes in the
F-22A or JSF programs could require additional funding to keep legacy
aircraft in the inventory and relevant to the warfighter's needs.

9Figure includes cost data for F/A-18 E/F because it could not be broken
out from the F-18 costs.

Figure 4: Development and Modification Estimates for Legacy Tactical
Fighter Aircraft

Note: Not all modification costs may be reflected. Decisions stemming from
the 2006 QDR or recent DOD actions have changed tactical aircraft program
funding. Also, F/A-18E/F data were included because they could not be
broken out from the F/A-18 data.

In testimony last year, we suggested that the QDR would provide an
opportunity for DOD to assess its tactical aircraft recapitalization plans
and weigh options for accomplishing its specific and overarching goals. In
February 2006, the Secretary of Defense testified that recapitalization of
DOD's tactical aircraft is important to maintain America's air dominance.
Despite this continued declaration about recapitalizing tactical aircraft,
DOD's 2006 QDR report did not present a detailed investment strategy that
addressed needs and gaps, identified alternatives, and assessed costs and
benefits. With limited information contained in the QDR report, many
questions are still unanswered about the future of DOD's tactical aircraft
modernization efforts.

DOD Has an Opportunity to Set Its Tactical Aircraft Recapitalization Efforts on
                                     Track

As DOD moves forward with its efforts to recapitalize its tactical
aircraft force, it has the opportunity to reduce operating costs and
deliver needed capabilities to the warfighter more quickly. To take
advantage of this opportunity, however, DOD must fundamentally change the
way it buys weapon systems. Specifically, the department must change how
it selects weapon systems to buy, and how it establishes and executes the
business case. Although the F-22A program has progressed further in the
acquisition process than the JSF program, both programs are at critical
decision-making junctures, and the time for DOD to implement change is
now.

Before additional investments in the F-22A program are made, DOD and the
Air Force must agree on the aircraft's capabilities and quantities and the
resources that can be made available to meet these requirements. A cost
and benefit analysis of F-22A capabilities and alternative solutions
weighed against current and expected threats is needed to determine
whether a sound business case for the F-22A is possible and whether
investing an additional $13.8 billion over the next 5 years to procure or
modernize these aircraft is justified.

With more than 90 percent of investment decisions to develop, test, and
buy JSF aircraft remaining, DOD could implement significant changes in its
business case before investing further in the JSF program. The JSF program
should delay production and investments in production capability until the
aircraft design qualities and integrated mission capabilities of the fully
configured and integrated JSF aircraft variants have been proven to work
in flight testing. Also, an evolutionary acquisition strategy to limit
requirements for the aircraft's first increment of capabilities that can
be achieved with proven technologies and available resources could
significantly reduce the JSF program's cost and schedule risks. Such a
strategy would allow the program to begin testing and low-rate production
sooner and, ultimately, to deliver a useful product in sufficient
quantities to the warfighter sooner. Once the JSF is delivered, DOD could
begin retiring its aging and costly tactical aircraft. Capabilities that
demand as yet undemonstrated technologies would be included as
requirements in future JSF aircraft increments that would be separately
managed. An evolutionary, knowledge-based acquisition approach would not
only help significantly minimize risk and deliver capabilities to the
warfighter sooner, it would be in line with current DOD policy
preferences. 10

DOD's use of an evolutionary, knowledge-based approach is not
unprecedented. The F-16 program successfully evolved capabilities over the
span of 30 years, with an initial F-16 capability delivered to the
warfighter about 4 years after development started. Figure 5 illustrates
the F-16 incremental development approach.

10 DOD argues that the JSF program is using an evolutionary approach
because it is developing capabilities in a series of blocks. However, the
approach is not truly evolutionary, as DOD does not consider each block as
a separate program-a critical aspect of an evolutionary approach. In
addition, DOD currently expects to buy 95 percent of the JSF aircraft in
the final block-which delays providing useful capabilities to the
warfighter.

Figure 5: F-16 Incremental Development Approach

The F-16 program provides a good acquisition model for the JSF program.
For JSF, an evolutionary approach could entail delivering a first
increment aircraft with at least as much capability as legacy aircraft
with sufficient quantities to allow DOD to retire its aging tactical
aircraft sooner and reduce operating inefficiencies. Limiting development
to 5-year increments or less, as suggested in DOD's acquisition policy,
would force smaller, more manageable commitments in capabilities and make
costs and schedules more predictable. Some of the more challenging JSF
capabilities, such as advanced mission systems or prognostics
technologies, would be deferred and added to follow-on efforts once they
are demonstrated in the technology development environment-a more
conducive environment to maturing and proving new technologies. A shorter
system development phase would have other important benefits. It would
allow DOD to align a program manager's tenure to the completion of the
phase, which would enable program managers to be held accountable for
decisions. It also would allow DOD to use fixed-price-type contracts for
production, and thereby reduce the government's cost risk.

Additionally, DOD should do a more comprehensive business case analysis of
the costs, benefits and risks before terminating the alternative engine
effort. A competitive engine program may (1) incentivize contractors' to
minimize life cycle costs; (2) improve engine reliability and quality in
the future; (3) provide operational options; and (4) maintain the
industrial base.

At a broader level, DOD needs to make more substantive changes to its
requirements, funding, and acquisition processes to improve weapon system
program outcomes. We have recommended these changes in past reports and
DOD has agreed with them. The January 2006 Defense Acquisition Performance
Assessment report, based on a study directed by the Deputy Secretary of
Defense, made some important observations regarding DOD acquisitions. The
report concluded that the current acquisition process is slow, overly
complex, and incompatible with meeting the needs of DOD in a diverse
marketplace. Notably, the report confirmed that a successful acquisition
process must be based on requirements that are relevant, timely, informed
by the combatant commanders, and supported by mature technologies and
resources necessary to realize development. The report also pointed out
that DOD's acquisition process currently operates under a "conspiracy of
hope," striving to achieve full capability in a single step and
consistently underestimating what it would cost to attain this capability.
The report makes a number of key recommendations for changing DOD's
acquisition process including the following:

           o  develop a new requirements process that has greater combatant
           commander involvement and is time-phased, fiscally informed, and
           jointly prioritized;
           o  change the current acquisition policy to ensure a
           time-constrained development program is strictly followed;
           o  keep program managers from the start of development through
           delivery of the "Beyond Low-Rate Initial Production Report"; and
           o  move the start of a development program to the point in time
           that a successful preliminary design review is completed.

Our work in weapons acquisition and best practices over the past several
years has drawn similar conclusions. We have made numerous recommendations
on DOD's acquisition processes and policy-as well as recommendations on
specific major weapon system programs-to improve cost, schedule, and
performance outcomes and to increase accountability for investment
decisions. In 2000, DOD revised its acquisition policy to address some of
our recommendations. Specifically, DOD has written into its policy an
approach that emphasizes the importance of knowledge at critical junctures
before managers agree to invest more money in the next phase of weapon
system development. Theoretically, a knowledge-based approach results in
evolutionary-that is, incremental, manageable, predictable-development and
uses controls to help managers gauge progress in meeting cost, schedule,
and performance goals. However, DOD policy lacks the controls needed to
ensure effective implementation of this approach. Furthermore, decision
makers have not consistently applied the necessary discipline to implement
its acquisition policy and assign much-needed accountability for decisions
and outcomes. Some of key elements of acquisition that we believe DOD
needs to focus on include the following:

           o  constraining individual program requirements by working within
           available resources and by leveraging systems engineering;
           o  establishing clear business cases for each individual
           investment;
           o  enabling science and technology organizations to shoulder the
           technology burden;
           o  ensuring that the workforce is capable of managing requirements
           trades, source selection, and knowledge-based acquisition
           strategies;
           o  establishing and enforcing controls to ensure appropriate
           knowledge is captured and used at critical junctures before moving
           programs forward and investing more money; and
           o  aligning tenure for program managers that matches the program's
           acquisition time to ensure greater accountability for outcomes.

In conclusion, despite DOD's repeated declaration that recapitalizing its
aging tactical aircraft fleet is a top priority, the department continues
to follow an acquisition strategy that consistently results in escalating
costs that undercut DOD's buying power, forces DOD to reduce aircraft
purchases, and delays delivering needed capabilities to the warfighter.
Continuing to follow a strategy that results in disappointing outcomes
cannot be encouraged-particularly given our current fiscal and national
security realities.

Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or other members of the subcommittee may have.

                              GAO Related Products

Joint Strike Fighter: DOD Plans to Enter Production before Testing
Demonstrates Acceptable Performance, GAO-06-356 (Washington D.C.: March
15, 2006).

Defense Acquisitions: Business Case and Business Arrangements Key for
Future Combat System's Success, GAO-06-478T (Washington D.C.: March 1,
2006).

Defense Acquisitions: DOD Management Approach and Processes Not
Well-Suited to Support Development of Global Information Grid, GAO-06-211
, (Washington D.C.: January 30, 2006).

Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees
Regardless of Acquisition Outcomes, GAO-06-66 , (Washington D.C.: December
19, 2005).

Unmanned Aircraft Systems: Global Hawk Cost Increase Understated in
Nunn-McCurdy Report, GAO-06-222R , (Washington D.C.: December 15, 2005)

DOD Acquisition Outcomes: A Case for Change, GAO-06-257T , (Washington
D.C.: November 15, 2005).

Defense Acquisitions: Progress and Challenges Facing the DD(X) Surface
Combatant Program GAO-05-924T . (Washington D.C.: 07/19/2005).

Defense Acquisitions: Incentives and Pressures That Drive Problems
Affecting Satellite and Related Acquisitions. GAO-05-570R . (Washington
D.C.: 06/23/2005).

Defense Acquisitions: Resolving Development Risks in the Army's Networked
Communications Capabilities is Key Fielding Future Force. GAO-05-669
(Washington D.C.: 06/15/2005).

Progress of the DD(X) Destroyer Program. GAO-05-752R . (Washington D.C.:
06/14/2005)

Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications for
Tactical Aircraft Modernization. GAO-05-519T . (Washington D.C.:
04/06/2005).

Defense Acquisitions: Assessments of Selected Major Weapon Programs.
GAO-05-301 (Washington D.C.: 03/31/2005).

Defense Acquisitions: Future Combat Systems Challenges and Prospects for
Success. GAO-05-428T . (Washington D.C.: 03/16/2005).

Defense Acquisitions: Changes in E-10A Acquisition Strategy Needed Before
Development Starts. GAO-05-273 (Washington D.C.: 03/15/2005).

Defense Acquisitions: Future Combat Systems Challenges and Prospects for
Success. GAO-05-442T (Washington D.C.: 03/15/2005).

Tactical Aircraft: Air Force Still Needs Business Case to Support F/A-22
Quantities and Increased Capabilities. GAO-05-304 . (Washington D.C.:
03/15/2005).

Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike Fighter
Program with Different Acquisition Strategy. GAO-05-271 . (Washington
D.C.: 03/15/2005).

Tactical Aircraft: Status of F/A-22 and JSF Acquisition Programs and
Implications for Tactical Aircraft Modernization. GAO-05-390T (Washington
D.C.: 03/03/2005).

Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate
Capability of First Littoral Combat Ships. GAO-05-255 (Washington D.C.:
03/01/2005).

Defense Acquisitions: Improved Management Practices Could Help Minimize
Cost Growth in Navy Shipbuilding Programs. GAO-05-183 (Washington D.C.:
02/28/2005).

Unmanned Aerial Vehicles: Changes in Global Hawk's Acquisition Strategy
Are Needed to Reduce Program Risks. GAO-05-06 (Washington D.C.:
11/05/2004).

(120533)

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Highlights of GAO-06-523T , a testimony before the Subcommittee on
AirLand, Committee on Armed Services, U.S Senate

March 2006

TACTICAL AIRCRAFT

Recapitalization Goals Are Not Supported by Knowledge-Based F-22A and JSF
Business Cases

The Department of Defense's (DOD) F-22A and Joint Strike Fighter (JSF)
programs aim to replace many of the Department's aging tactical fighter
aircraft-many of which have been in DOD's inventory for more than 20
years. Together, the F-22A and JSF programs represent a significant
investment for DOD-currently estimated at almost $320 billion.

GAO has reported on the poor outcomes in DOD's acquisitions of tactical
aircraft and other major weapon systems. Cost and schedule overruns have
diminished DOD's buying power and delayed the delivery of needed
capabilities to the warfighter. Last year, GAO testified that weaknesses
in the F-22A and JSF programs raised questions as to whether DOD's
overarching tactical aircraft recapitalization goals were achievable.

At the request of this Subcommittee, GAO is providing updated testimony on
(1) the extent to which the current F-22A and JSF business cases are
executable, (2) the current status of DOD's tactical aircraft
recapitalization efforts, and (3) potential options for recapitalizing the
air forces as DOD moves forward with its tactical aircraft
recapitalization efforts.

The future of DOD's tactical aircraft recapitalization depends largely on
the outcomes of the F-22A and JSF programs-which represent about $245
billion in investments to be made in the future. Both programs continue to
be burdened with risk. The F-22A business case is unexecutable in part
because of a 198 aircraft gap between the Air Force requirement and what
DOD estimates it can afford. The JSF program, which has 90 percent of its
investments still in the future, plans to concurrently test and produce
aircraft thus weakening DOD's business case and jeopardizing its
recapitalization efforts. It plans to begin producing aircraft in 2007
with less than 1 percent of the flight test program completed.

DOD's current plan to buy about 3,100 new major tactical systems to
replace its legacy aircraft represents a 33-percent reduction in
quantities from original plans. With reduced buys and delays in delivery
of the new systems, costs to keep legacy aircraft operational and relevant
have increased. While the Secretary of Defense maintains that continued
U.S. air dominance depends on a recapitalized force, DOD has not presented
an investment strategy for tactical aircraft systems that measures needs,
capability gaps, alternatives, and affordability. Without such a strategy,
DOD cannot reasonably ensure it will recapitalize the force and deliver
needed capabilities to the warfighter within cost and schedule targets. As
DOD moves forward with its efforts to recapitalize its tactical aircraft,
it needs to rethink the current business cases for the F-22A and JSF
programs. This means matching needs and resources before more F-22A
aircraft are procured and ensuring the JSF program demonstrates acceptable
aircraft performance before it enters initial production.

Comparison of Original and Current Procurement Quantities for F/A-18EF,
F-22A and JSF
*** End of document. ***