In  addition, DOD’s acquisition strategy called for high levels of concurrency  between development, testing, and production. Recent Technical Challenges Will Likely Result in Cost Growth and Schedule Delays

The F-35 program continued to experience development and testing  discoveries over the past year, largely due to a structural failure on the F- 35B durability test aircraft, an engine failure, and more mission system  test growth than expected. Need to Improve Engine Reliability Presents Additional Challenges

The program has a long way to go to achieve its engine reliability goals. Improving engine reliability will likely require additional  design changes and retrofits. Affordability Challenges Will Likely Continue to Affect Program Plans to Increase F-35 Procurement

As of December 2014, the program office estimated that the total  acquisition cost of the F-35 will be $391.1 billion, or $7.4 billion less than  DOD reported in December 2013. From fiscal years 2015 to 2019, DOD  plans to increase annual development and procurement funding for the F- 35 from around $8 billion to around $12 billion, an investment of more  than $54 billion over that 5-year period, while competing with other large  programs for limited acquisition resources. Funding needs will  remain between $14 and $15 billion for nearly a decade and peak at  $15.1 billion in 2029 (see figure 4). Although this action may reduce  near-term funding requirements as well as concurrency risks, it will likely  increase the average unit cost of the aircraft purchased over that time and  may increase funding liability in the future. DOD policy requires  affordability analyses to inform long-term investment decisions. The  consistent changes in F-35 procurement plans, made during the annual  DOD budget process, indicate that the analysis done to support the  program’s 2012 baseline did not accurately account for future technical  risks or funding realities. Supplier performance has been mixed as late deliveries have  resulted in increases to part shortages. The contractor  has delivered a total of 110 aircraft since 2011—9 in 2011, 30 in 2012, 35  in 2013, and 36 in 2014. The number of major engineering design changes has also continued to  decline over time, and is currently tracking to the program’s plan. Supplier deliveries requiring scrap, rework, and repair averaged 1.3  percent of the hours spent building an aircraft over the last 2 years. Conclusions

The F-35 remains DOD’s most costly and ambitious programs and one of  its highest priority acquisition programs. At the same time, DOD plans to  steeply increase its procurement funding requests over the next 5 years  and projects that it will need between $14 and $15 billion annually for  nearly a decade. It is unlikely that the program will be able to receive and  sustain such a high and unprecedented level of funding over this  extended period, especially with other significant fiscal demands weighing  on the nation. Recommendations

As DOD plans to significantly increase F-35 procurement funding over the  next 5 years, we recommend that the Secretary of Defense conduct an  affordability analysis of the program’s current procurement plan that  reflects various assumptions about future technical progress and funding  availability. Independent  review teams evaluated  aircraft and engine  manufacturing processes. Operating  and support cost estimates may  not be reliable. Appendix II: Scope and Methodology

To assess the program’s ongoing development and testing we reviewed  the status of software development and integration and contractor  management improvement initiatives. We compared test progress against the total  program plans to complete. We analyzed reliability data and  discussed these issues with program and contractor officials. To assess manufacturing and supply chain performance we obtained and  analyzed data related to aircraft delivery rates and work performance data  through the end of calendar year 2014. GAO-12-525T. Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting  Warfighter Requirements on Time. Tactical Aircraft: DOD’s Cancellation of the Joint Strike Fighter Alternate  Engine Program Was Not Based on a Comprehensive Analysis.
Why GAO Did This Study

With estimated acquisition costs of nearly $400 billion, the F-35 Lightning II—also known as the Joint Strike Fighter—is DOD's most costly and ambitious acquisition program. The U.S. portion of the program will require annual acquisition funding of $12.4 billion on average through 2038 to complete development and procure a total of 2,457 aircraft. GAO's prior work has found that the program has experienced significant cost, schedule, and performance problems.
In 2009, Congress mandated that GAO review the F-35 acquisition program annually for 6 years. This report, GAO's sixth, assesses the program's (1) development and testing progress, (2) cost and affordability, and (3) manufacturing and supply chain performance.
GAO reviewed and analyzed the latest available manufacturing, cost, testing, and performance data through December 2014; program test plans; and internal DOD analyses; and interviewed DOD, program, engine and aircraft contractor officials.

What GAO Found

The F-35 Joint Strike Fighter program had to make unexpected changes to its development and test plans over the last year, largely in response to a structural failure on a durability test aircraft, an engine failure, and software challenges. At the same time, engine reliability is poor and has a long way to go to meet program goals. With nearly 2 years and 40 percent of developmental testing to go, more technical problems are likely. Addressing new problems and improving engine reliability may require additional design changes and retrofits. Meanwhile, the Department of Defense (DOD) has plans to increase annual aircraft procurement from 38 to 90 over the next 5 years. As GAO has previously reported, increasing production while concurrently developing and testing creates risk and could result in additional cost growth and schedule delays in the future.
Cost and affordability challenges remain. DOD plans to significantly increase annual F-35 funding from around $8 billion to nearly $12 billion over the next 5 years (see figure) reaching $14 billion in 2022 and remaining between $14 and $15 billion for nearly a decade. Over the last year, DOD reduced near-term aircraft procurement by 4 aircraft, largely due to budget constraints. While these deferrals may lower annual near-term funding needs, they will likely increase the cost of aircraft procured in that time frame and may increase funding liability in the future. It is unlikely the program will be able to sustain such a high level of annual funding and if required funding levels are not reached, the program's procurement plan may not be affordable. DOD policy requires affordability analyses to inform long-term investment decisions. The consistent changes in F-35 procurement plans indicate that DOD's prior analyses did not adequately account for future technical and funding uncertainty.
Manufacturing progress continued despite mixed supplier performance. The aircraft contractor delivered 36 aircraft as planned in 2014, despite a fleet grounding, added inspections, and software delays. In contrast, the labor hours needed to manufacture an aircraft and the number of major design changes have continued to decline over time. Because supplier performance has been mixed, late aircraft and engine part deliveries could pose a risk to the program's plans to increase production. The contractors are taking steps to address these issues.

What GAO Recommends

GAO recommends that DOD assess the affordability of F-35's current procurement plan that reflects various assumptions about technical progress and future funding.