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 voilà! 

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

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