Monday, August 30, 2010

Tough Choices, Right Reasons

In an era dominated by shallow, partisan politics designed to perpetuate the status quo through the next election and beyond, we applaud the unadorned selflessness and courage demonstrated by Secretary of Defense Robert Gates at his August 9th press briefing on acquisition reform.

Shunning the well-worn path of least resistance, Secretary Gates boldly identified a plan to reign in spending on his terms, rather than kick the proverbial can from the Pentagon across the Potomac and up to Capitol Hill. Generating $100 billion in overhead savings in five years won’t come easily, especially in the midst of relatively stagnant job market that drives politicians to be even more parochial than usual. However, the opportunity to restructure the right way, while also empowering the services to redirect savings towards higher priority warfighter needs, proved far too compelling to ignore.

“It is important that we not repeat the mistakes of the past, where tough economic times or the winding down of a military campaign leads to steep and unwise reductions in defense,” Gates said. And while newly stated measures garnered the majority of press coverage, it’s important to remember that more established saving priorities, including cancellation of the F136 extra engine, remain vital to long-term success.

“To see these initiatives in context, I think you need to step back and see them as the next move in a process that has been going on for two years,” Gates stated. “It began at the National Defense University with my speech in September of 2008; the far-reaching decisions on programs for fiscal year '10 that were made in April of 2009; the decisions on the alternate engine and C-17s earlier this year; and the Eisenhower Library speech in May.”

Lest anyone miss the F136 reference or doubt the Obama administration’s continued opposition to spending an additional $2.9 billion on an engine the military doesn’t need nor want, Gates added, “Any bill that takes the alternate engine…to the president, I am confident will be vetoed.”

The myriad reasons for canceling the F136 persist. It lost early competitions to power the Lockheed Martin X-35 and Boeing X-32 Joint Strike Fighter finalists. Years later, it remains very immature having accumulated a few hundred system design and demonstration (SDD) hours, while Pratt & Whitney’s F135, benefitting from its F119 predecessor that continues to power the F-22, has accumulated nearly 15,000 SDD hours. Today, the F136 remains in a test cell undergoing incremental development, while the F135 continues to prove itself in rigorous F-35 flight tests and has made a smooth transition to production. Further expenditure on the F136 is unlikely to ever be recouped, compared to the economies of scale that will only help lower F135 unit costs, benefitting all domestic and international F-35 customers and their taxpayers.

Secretary Gates has challenged Americans to “be mindful of the difficult economic and fiscal situation facing our nation” while also conducting two wars and countering numerous terrorist threats and rising powers. Tough times call for smart solutions, yet canceling the F136 remains a relative no-brainer.

– EagleBlogger

Monday, August 23, 2010

Imaginary Numbers: Repetition ≠ Truth

A basic tenet of advertising is that one’s message must be repeated ad nauseam before being retained by the target audience. Yet the monotonous drumbeat of F136 headlines belies the truth, especially when it comes to the imaginative claims about future savings at the expense of the taxpayer and warfighter.

The F136 team’s central argument begins with creative math. They claim that the Government Accountability Office (GAO) forecasts $20 billion in savings through a new competition to power the F-35 Joint Strike Fighter. Yet the March 24, 2010 report by the GAO cited does no such thing. In fact, the report on page 11 states, “Total saving of about 21 percent in overall lifecycle costs.” And yet even that figure applies only “when comparing actual costs to the program’s baseline estimates,” despite the fact the latter is always higher than the former due to initial program risk.

Next, the F136 team commits a sin of omission, conveniently ignoring the GAO disclaimer “we did not do an in-depth analysis” of the so-called Great Engine War. Even if they had, it would have been nigh on impossible to prove that decreased costs were solely the result of competition rather than program maturity, which includes decreasing risk and economies of scale.

So, from whence does the elusive $20 billion savings figure originate? Simple.GE and its F136 allies estimated the total value of the F-35 propulsion program at $100 billion and multiplied that number by 21 percent. 

Et voilĂ ! 

Yet most of that notional $100 billion can never be competed. The GAO’s analysis could support estimated savings of $2B - $2.5B over 20 years of engine production but why should the U.S. taxpayers pay $2.9B up front in the HOPES of saving $2.5B over the next two decades? There will also be the added cost of dual Component Improvement Programs and mid-life upgrade programs as well as other costs due to inefficiencies inherent in duplicate logistics systems.

Historically, sustainment (personnel, logistics, spare parts, etc) accounts for two-thirds of an engine program. But F135 and F136 sustainment can’t be competed since each engine features proprietary design, components and tooling. Additionally, the federal government will be a major provider of sustainment services. Bottom line: no competitive benefit for roughly $60 billion of the F-35 propulsion program.

Production accounts for the other third of an engine’s lifecycle cost, yet in reality, competition will be limited here too. There are several engine components common to both the F135 and F136. Both the F135 and F136 Short Take-Off and Vertical Landing (STOVL) engines will utilize a common Lift System – half the cost of that variant. And for all CTOL/CV engines, Pratt & Whitney will deliver the augmenter duct/liner and nozzle. All this common hardware takes another $5 billion off the competition table.

Next, remember there won’t even be an F136 for the first five lots, followed by a government-mandated quantity split for lots six, seven and eight. That means no real competition until 2017 and thus another $7 billion subtraction.

Lastly, there is the international partner share of production valued at $8 billion. Will theoretical savings from competition in the international market benefit the US taxpayer? No.

These exceptions bring the actual figure theoretically open for future competition down to about $20 billion. The GAO report went on to state that it is reasonable to save 10.3-12.3%. Therefore $2.0-2.5 billion could be recouped through yet another JSF engine competition.

That’s about a tenth of what the F136 team claims.

But, the Department of Defense has stated numerous times in the past, an additional $2.9 billion will be needed to bring the F136 to competition in 2017, presuming no additional setbacks.

Spend $2.9 billion to save $2.5 billion at most? President Obama, Defense Secretary Gates and the Pentagon leadership aren’t the only ones who are saying no to the F136 extra engine. Countless taxpayers agree, especially math teachers. Imagine that.

– EagleBlogger