F-22 to Exceed Congressional Production Cost Cap

A report released last week by the General Accounting Office (GAO) states that estimates by both the Air Force and the Defense Department put the costs of producing the F-22 "Raptor" above spending caps enacted by Congress.

Concerned about the spiraling costs of the F-22 program, Congress in 1997 capped both development and production costs of the aircraft as part of the Defense Authorization Act for Fiscal Year 1998. Development costs were capped at $18.688 billion, while production costs were limited to $43.4 billion. Flexibility was built in to the caps to permit changes resulting from such things as later congressional actions or revised inflation estimates. While capping the total cost of the program, the 1997 legislation did not specify the number of aircraft to be purchased.

At the time the GAO looked at the Air Force's and DoD's estimates, production costs for the F-22 were capped at $39.8 billion, due in large part to legislation which shifted two of the aircraft from production models to pre-production test airframes. The GAO found that both the Air Force's production cost estimate of $40.8 billion and DoD's estimate of $48.6 billion exceeded the adjusted congressional cap. The GAO also noted that while about half of the $21 billion in cost reduction initiatives identified by the F-22 contractors and the program office had not yet been implemented, the "possibility exists that these cost estimates could increase further if some cost reductions do not materialize."

The GAO looked at 10 cost reduction initiatives out of 1,240 plans identified by contractors and the program office. Alone these 10 plans accounted for $6.8 billion of the estimated $21 billion in potential cost savings. Of these ten, the GAO found that four of the plans, worth $5.6 billion "may not be achievable because they were made dependent on decisions or later determinations by the Office of the Secretary of Defense or the Congress." Such cost reductions include congressional approval of multi-year production of the F-22, which contractors estimate will save $1.5 billion, and DoD and Congressional approval of the Joint Strike Fighter (JSF), which could result in $1 billion in lower contractor overhead, since many of the JSF contractors are also working on the F-22.

In examining the reasons for the differences between the Air Force's and DoD's cost estimates, the GAO found that while "both estimates were based on the production of 339 aircraft, the two estimating groups did not use the same estimating methods, nor did they make the same estimating assumptions." The difference of $7.8 billion is due to DoD's higher estimates of the actual cost of production ($3.7 billion above the Air Force levels) and lower estimates of potential savings ($4.1 billion below). This difference represents 19 percent of total production costs, which could have a profound effect on the F-22 program if it is to stay within the congressional budget limit. The GAO estimated that "the Air Force would have to buy about 85 fewer F-22 aircraft than now planned."

The GAO report recommends that the Air Force report quarterly on the status of production cost reduction plans. It also recommends that DoD "reconcile the number of F-22s that need to be procured with the congressional cost limitation and report to the Congress on the implications of procuring fewer F-22s because of potentially higher costs." In his written response to the GAO's recommendation, George Schnieter, DoD's director of Strategic and Tactical Systems stated that the upcoming Quadrennial Defense Review would determine the number of F-22s that could be produced within the congressional cap.

If DoD's estimates are correct and Congress stands firm, the GAO believes that 85 F-22s will have to be cut from the planned buy. (According to the GAO, DoD estimators put this number "between 75 and 90.") In 1991, the Air Force reduced the planned number of F-22s from 648 to 438, and the 1997 Quadrennial Defense Review cut it to 339. But can the Air Force really live with only 254 F-22s?