	Background

The JSF program goals are to develop and field an affordable, highly  common family of stealthy, next-generation strike fighter aircraft for the  Navy, Air Force, Marine Corps, and U.S. allies. DOD is planning to buy a total of 2,458 JSFs. Progress Measured against Cost, Schedule, and Performance Goals Was Mixed over the Last Year

The total program acquisition cost estimate by the JSF program office has  increased since our report last year, primarily due to higher projected  procurement unit prices. DOD and the contractor  reported progress in several areas, including international partner  agreements, first flights of a JSF prototype and test bed, and a more  realistic procurement schedule. The Program Cost Estimate Increased, while Schedule and Performance Estimates Remained about the Same

JSF costs increased since last year. However, there were significant changes in scope  and planned use of funds in order to maintain that estimate as officials  reduced requirements, did not include full funding for the alternate engine  program despite congressional interest in the program, and spent  management reserves much faster than budgeted. The program faced a  probable contract overrun. With almost 90  percent (in terms of dollars) of the acquisition program still ahead, these  and other improvements could be leveraged to help better meet cost,  schedule and performance goals. Development Program Faces Increased Risks of Further Cost Increases and More Schedule Delays

Late in 2007, DOD officials approved a risky and controversial plan that  replenishes management reserves by reducing development test aircraft  and test flights in order to stay within current cost and schedule estimates. By mid-2007, the development program had completed one-half of the  amount of work scheduled, but had expended two-thirds of the budget. JSF program management identified a continuing persistent cost  variance of $250 million to $300 million in the aircraft development  contract and the associated shortfall in reserves that required near-term  action beyond “belt tightening.”
An overarching integrated product team considered several alternative  actions, including doing nothing and adding funds from procurement, but  the team chair concluded that replenishment of the management reserve  was essential to position the JSF program to successfully address its  anticipated future development challenges. The Mid-Course Risk Reduction plan does not  directly address design and manufacturing inefficiencies that created the  problem in the first place. Eliminating development test activities and deferring additional tasks to be  completed during operational testing increase the likelihood that design and  performance problems will not be identified and resolved until late in the  program, when it is more costly and disruptive and could delay the delivery of  capabilities to the warfighter. Future Challenges as Program Moves Forward

The JSF is entering its most challenging phase as it finalizes three designs,  matures manufacturing processes, conducts flight tests, and ramps up  production. Rising unit procurement prices,  and somewhat lower commonality than expected, raise concerns that the  United States and its allies may not be able to buy as many aircraft as  currently planned. The program also places an unprecedented demand for funding on the  defense budget—an annual average of about $11 billion for the next two  decades--with attendant funding risk should political, economic or military  conditions change. The JSF will have to annually compete with other  defense and nondefense priorities for the shrinking discretionary federal  dollar. The operating cost per  flying hour for the JSF CTOL is now estimated to be greater than current  flying hour cost for the F-16, one of the legacy aircraft to be replaced. DOD also substantially agreed with our three recommendations on cost  estimating. We found that the JSF program  office has not followed best practices for developing a reliable and valid life  cycle cost estimate because it did not include certain key costs, assumptions  used to develop the estimate are overly optimistic, the estimate is not well  documented, and no analysis has been done to state the confidence and  certainty it has in its estimate. Alternate engine program. This omits about $6.8 billion left out of the JSF cost  estimate for this program. Joint Strike Fighter: Progress Made and Challenges Remain.
Why GAO Did This Study

The Joint Strike Fighter (JSF) program seeks to produce and field three aircraft variants for the Air Force, Navy, Marine Corps, and eight international partners. The estimated total investment for JSF now approaches $1 trillion to acquire and maintain 2,458 aircraft. Under congressional mandate, GAO has annually reviewed the JSF program since 2005. GAO's prior reviews have identified a number of issues and recommended actions for reducing risks and improving the program's outcomes. This report, the fourth under the mandate, focuses on the program's progress in meeting cost, schedule, and performance goals; plans and risks in development and test activities; the program's cost-estimating methods; and future challenges facing the program. To conduct its work, GAO identified changes in cost and schedule from prior years and their causes, evaluated development progress and plans, assessed cost-estimating methodologies against best practices, and analyzed future budget requirements.

What GAO Found

Since last year's report, the JSF program office estimates that total acquisition costs increased by more than $23 billion, primarily because of higher estimated procurement costs. The JSF development cost estimate stayed about the same. Development costs were held constant by reducing requirements, eliminating the alternate engine program, and spending management reserve faster than budgeted. Facing a probable contract cost overrun, DOD implemented a Mid-Course Risk Reduction Plan to replenish management reserves from about $400 million to about $1 billion by reducing test resources. Progress has been reported in several important areas, including partner agreements, first flights of a JSF prototype and test bed, and a more realistic procurement schedule. The midcourse plan carries the risk of design and performance problems not being discovered until late in the operational testing and production phases, when it is significantly more costly to address such problems. The plan also fails to address the production and schedule concerns that depleted management reserves. Cost and schedule pressures are mounting. Two-thirds of budgeted funding for JSF development has been spent, but only about one-half of the work has been completed. The contractor is on its third, soon to be fourth, manufacturing schedule, but test aircraft in manufacturing are still behind, the continuing impacts of late designs, delayed delivery of parts, and manufacturing inefficiencies. We believe that JSF costs will likely be much higher than reported. The estimates do not include all costs, including about $6.8 billion for the alternate engine program. In addition, some assumptions are overly optimistic and not well documented. Three independent defense offices separately concluded that program cost estimates are understated by as much as $38 billion and that the development schedule is likely to slip from 12 to 27 months. Discrepancies in cost estimates add to program risks and hinder congressional oversight. Even so, DOD does not plan for another fully documented, independent total program life-cycle cost estimate until 2013. As JSF finalizes the three designs, matures manufacturing processes, conducts flight tests, and ramps up production, it faces significant challenges. JSF's goal--to develop and field an affordable, highly common family of strike aircraft--is threatened by rising unit procurement prices and lower commonality than expected. The program also makes unprecedented funding demands--an average of $11 billion annually for two decades--and must compete with other defense and nondefense priorities for the shrinking federal discretionary dollar. Further, expected cost per flight hour now exceeds that of the F-16 legacy fighter, one of the aircraft it is intended to replace. With almost 90 percent (in terms of dollars) of the acquisition program still ahead, it is important to address these challenges, effectively manage future risks, and move forward with a successful program that meets our and our allies' needs.