	Restructuring Reduces Near Term Risk, but Long Term Affordability Is Challenging

JSF restructuring continued throughout 2011 and into 2012 with  additional costs and extended schedules incurred for key activities and  decisions. The Department is expected to soon approve a new  acquisition program baseline that will likely make further changes in cost  and schedule. The interim total program cost estimate increased about $15 billion since  the June 2010 estimate included in the Nunn-McCurdy certification, about  $5 billion for development and $10 billion for procurement. Compared to  the current approved baseline set in 2007, total costs have increased  about $119 billion, unit procurement costs have risen more than 40  percent, and the start of full-rate production has been delayed 5 years. Initial operational capability dates for the Air Force, Navy  and Marine Corps—the critical dates when the warfighter expects the  capability promised by the acquisition program to be available—have  been delayed over time and are now unsettled. With the  latest reduction, the program now plans to procure a total of 365 aircraft  through 2017, about one-fourth of the 1,591 aircraft expected in the 2002  plan. As shown in figure 2, the JSF annual funding  requirements average more than $13 billion through 2035, and approach  $16 billion annually for an extended period. Mixed Performance in 2011 Affected by Concurrency and Technical Risks

Much of the instability in the JSF program has been and continues to be  the result of highly concurrent development, testing, and production  activities. During 2011, overall performance was mixed as the program  achieved 6 of 11 primary objectives for the year. Initial development flight tests of a fully  integrated, capable JSF aircraft to demonstrate full mission systems  capabilities, weapons delivery, and autonomic logistics is now expected in  2015 at the earliest. With most development flight testing still  to go, the program can expect more changes to aircraft design and  continued alterations of manufacturing processes. Late releases  of software have delayed testing and training, and added costs. Only 4 percent of mission systems requirements have been  verified and significant learning and development remains before the  program can demonstrate mature software and hardware. Problems with the helmet mounted display may pose the greatest risk. DOD is pursuing a  dual path by funding a less-capable alternate helmet as a back-up;  this development effort will cost more than $80 million. The Autonomic Logistics Information System (ALIS) is a ground  system essential to managing and streamlining logistics and  maintenance functions and for controlling life-cycle operating and  support costs. Engineering  changes are persisting at relatively high rates and additional changes will  be needed as testing continues. Until  manufacturing processes are in control and engineering design changes  resulting from information gained during developmental testing are  reduced, there is risk of more cost growth. Even with the substantial reductions in near-term procurement  quantities, DOD is still investing billions of dollars on hundreds of aircraft  while flight testing has years to go. Cost overruns on each of the first four annual procurement  contracts are projected to total about $1 billion (see table 2). According to program documentation, through the cost sharing provisions  in these contracts, the government’s share of the total overrun is about  $672 million. On average, the government is paying an additional $11  million for the 63 aircraft on under contract (58 are U.S. aircraft and 5 are  for international partners). Defense officials reduced the buy  quantity in the fifth annual procurement contract to help fund these cost  overruns and additional retrofit costs to fix deficiencies discovered in  testing. Each was delivered more than 1 year late. This will make it vital that the contractor  achieve an efficient manufacturing process. Testing and Production Overlap Increases Engineering Changes and Concurrency Costs

We and several defense offices cautioned the Department years ago  about the risks posed by the extremely high degree of concurrency, or overlap, among the JSF development, testing, and production activities.To date, the Government has incurred an estimated $373 million in retrofit  costs on already-built aircraft to correct deficiencies discovered in  development testing. While the JSF program’s engineering change traffic– the monthly volume of changes made to engineering drawings–is  declining, it is still higher than expected for a program entering its sixth  year of production. DOD’s November 2011 report concluded that the “team  assesses the current confidence in the design maturity of the F-35 to be  lower than one would expect given the quantity of LRIP aircraft  procurements planned and the potential cost of reworking these aircraft  as new test discoveries are made. The JSF remains the critical centerpiece of DOD’s long-term tactical  aircraft portfolio. System development of the aircraft and engine ongoing  for over a decade, continue to experience significant challenges. Defense Management: DOD Needs to Monitor and Assess Corrective  Actions Resulting from Its Corrosion Study of the F-35 Joint Strike  Fighter. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

The F-35 Lightning II, also known as the JSF, is DODs most costly and ambitious aircraft acquisition, seeking to simultaneously develop and field three aircraft variants for the Air Force, Navy, Marine Corps, and eight international partners. The JSF is critical to DODs long-term recapitalization plans as it is intended to replace hundreds of legacy aircraft. Total U.S. investment in the JSF is nearing $400 billion to develop and procure 2,457 aircraft over several decades and will require a long-term, sustained funding commitment. In 2010, DOD began to extensively restructure the program to address relatively poor cost, schedule, and performance outcomes.
This testimony draws on GAOs extensive body of work on the JSF, including preliminary results from the current annual review mandated in the National Defense Authorization Act for Fiscal Year 2010. This testimony discusses (1) program costs, schedule changes, and affordability issues, (2) performance testing results, software, and technical risks, and (3) procurement contract cost performance, concurrency impacts, manufacturing results, and design changes. GAOs work included analyses of a wide range of program documents and interviews with defense and contractor officials.

What GAO Found

Joint Strike Fighter (JSF) restructuring continues into a third year, adding to cost and schedule. Since June 2010, the total cost estimate increased about $15 billion, $5 billion for development and $10 billion for procurement. There will likely be additional changes when the Department of Defense (DOD) approves a new program baseline, expected soon. Compared to the current approved baseline from 2007, total costs have increased about $119 billion, full-rate production has been delayed 5 years, and initial operational capability dates are now unsettled because of program uncertainties. While the total number of aircraft the U. S. plans to buy has not changed, DOD has for 3 straight years reduced near-term procurement quantities, deferring aircraft and costs to future years. Since 2002, the program has reduced aircraft procurement quantities through 2017 by three-fourths, from 1,591 to 365. As the program continues to experience cost growth and delays, projected annual funding needs are unprecedented, averaging more than $13 billion a year through 2035.
Most of the instability in the program has been and continues to be the result of highly concurrent development, testing, and production. Overall performance in 2011 was mixed as the program achieved 6 of 11 primary objectives. Developmental flight testing gained momentum and is about one-fifth complete with the most challenging tasks still ahead. The program can expect more changes to aircraft design and manufacturing processes. Performance of the short takeoff and vertical landing variant improved this year and its probation period to fix deficiencies was ended early, even though several fixes are temporary and untested. Management and development of the more than 24 million lines of software code continue to be of concern and late software releases have delayed testing and training. Development of the critical mission systems that give the JSF its core combat capabilities remains behind schedule and risky. To date, only 4 percent of the mission system requirements for full capability has been verified. Testing of a fully integrated JSF aircraft is now expected in 2015 at the earliest. Deficiencies with the helmet mounted display, integral to mission systems functionality and concepts of operation, are most problematic. DOD is funding a less-capable alternate helmet as a back-up. The autonomic logistics information system, a key ground system for improving aircraft availability and lowering support costs, is not yet fully developed.
Cost overruns on the first four annual procurement contracts total more than $1 billion and aircraft deliveries are on average more than one year late. Officials said the governments share of the cost growth is $672 million; this adds about $11 million on average to the price of each of the 63 aircraft under those contracts. In addition to the overruns, the government also incurred an estimated $373 million in retrofit costs on produced aircraft to correct deficiencies discovered in testing. The manufacturing process is still absorbing a higher than expected number of engineering changes resulting from flight testing, which makes it difficult to achieve efficient production rates. Until engineering changes are reduced, there are risks of additional cost overruns and retrofit costs. The program now estimates that the number of changes will persist at elevated levels through 2019. Even with the substantial reductions in near-term procurement quantities, DOD is still investing billions of dollars on hundreds of aircraft while flight testing has years to go.

What GAO Recommends

GAO has made prior recommendations to help reduce risk and improve outcomes, which DOD has implemented to varying degrees. GAOs forthcoming report will address these in detail along with potential new recommendations.