Additional investment  of between $3.6 billion and $4.5 billion may be required should the  Department decide to continue competition in the JSF engine program. While Pratt & Whitney design  responsibilities and associated costs may be reduced under a sole-source  contract, our analysis shows that competitive pressures may yield enough  financial savings to offset the costs of competition over the life of the  program. Given certain  assumptions with regard to these factors, the additional costs of having  the alternate engine could be recouped if competition were to generate  approximately 10.3 to 12.3 percent savings. According to actual Air Force  data from past engine programs, including for the F-16 aircraft, it is  reasonable to expect savings of at least that much. This includes cost  estimates for the completion of system development, procurement of  engines, production support, and sustainment. JSF Engine Competition Could Result in Future Savings

In testimony last year, the Under Secretary of Defense for Acquisition,  Technology, and Logistics reported that DOD preferred a sole-source  engine strategy for the JSF program. DOD implemented the JSF alternate engine development program to  provide competition between two engine manufacturers in an effort to  achieve cost savings, improve performance, and gain other benefits. In fact, in 1998 and 2002, DOD program  management advisory groups assessed the JSF alternate engine program  and found the potential for significant benefits in these and other areas. It is reasonable to assume that  competition under these criteria may drive better engine performance and  reliability over the life of the program. Because the JSF is expected  to be the primary fighter aircraft in the U.S. inventory, and Pratt & Whitney  will also be the sole-source provider of F119 engines for the F-22A  aircraft, DOD is faced with the potential scenario where almost the entire  fleet could be dependent on similar engine cores, produced by the same  contractor in a sole-source environment. JSF Program Could Have Long-term Impact on Industrial Base

The economic stakes in the JSF engine program are likely to be high given  the size of the program, international participation, and the expected  supplier base. Prior engine programs and  more recent DOD studies and analyses also suggest these outcomes to be  reasonable. Tactical Aircraft: DOD’s Cancellation of the Joint Strike Fighter  Alternate Engine Program Was Not Based on a Comprehensive Analysis,  GAO-06-717R. Joint Strike Fighter Acquisition: Observations on the Supplier Base,  GAO-04-554. We considered all costs for  development through fiscal year 2007 to be sunk costs and did not  factor them into analysis. We  assumed costs to the government could decrease in any or all of  these areas as a result of competitive pressures.
Why GAO Did This Study

The Joint Strike Fighter (JSF) is the linchpin of future Department of Defense (DOD) tactical aircraft modernization efforts because of the sheer size of the program and its envisioned role as the replacement for hundreds of aircraft that perform a wide variety of missions in the Air Force, Navy, and Marine Corps. DOD implemented the JSF alternate engine development program in 1996 to provide competition between two engine manufacturers in an effort to achieve cost savings, improve performance, and gain other benefits. This testimony focuses on GAO's cost analysis performed in response to Section 211 of the John Warner National Defense Authorization Act for Fiscal Year 2007. We examined the following areas: (1) sole-source and competitive scenarios for development, production, and sustainment of the JSF engine, (2) results of past engine programs and their related strategies, and (3) impact on the industrial base in the event of the complete cancellation of the JSF alternate engine program. DOD did not provide comments on our findings.

What GAO Found

Continuing the alternate engine program for the Joint Strike Fighter would cost significantly more than a sole-source program but could, in the long run, reduce costs and bring other benefits. The current estimated life cycle cost for the JSF engine program under a sole-source scenario is $53.4 billion. To ensure competition by continuing to implement the JSF alternate engine program, an additional investment of $3.6 billion to $4.5 billion may be required. However, the associated competitive pressures from this strategy could result in savings equal to or exceeding that amount. The cost analysis we performed suggests that a savings of 10.3 to 12.3 percent would recoup that investment, and actual experience from past engine competitions suggests that it is reasonable to assume that competition on the JSF engine program could yield savings of at least that much. In addition, DOD-commissioned reports and other officials have said that nonfinancial benefits in terms of better engine performance and reliability, improved industrial base stability, and more responsive contractors are more likely outcomes under a competitive environment than under a sole-source strategy. DOD experience with other aircraft engine programs, including the F-16 fighter in the 1980s, has shown competitive pressures can generate financial benefits of up to 20 percent during the life cycle of an engine program and/or improved quality and other benefits. The potential for cost savings and performance improvements, along with the impact the engine program could have on the industrial base, underscores the importance and long-term implications of DOD decision making with regard to the final acquisition strategy solution.