'Cost' is a four-letter word

I was conversing recently with someone involved with the F-35 JSF project, and asked him specifically about the affordability of these aircraft. Given some of the speculation surrounding the aircraft's eventual costs, as highlighted here, I figured it wasn't an unreasonable question. So he asked someone at LockMart about it, and here's what they told him: "The unit cost will be about the same as current generation multi-role fighters, but the capability will be far greater."

When someone answers a pretty clear question - I'm looking for a number, here! - with something that nebulous, there's no real point in asking "What the hell does that mean?"

Just try tracking down figures on what any mil-spec equipment costs, but especially fighter aircraft. Are you including R&D costs? Service and spares? Are you looking at just the initial production run, or the incremental cost of follow-on orders? For domestic or foreign purchasers?

My inquiry about the JSF was brought about by the publicly available variations I'd seen in pricing recently. GlobalSecurity.org put the unit cost at $100M, CDI puts it at $122M, but Defence Tech puts it at only $63M. When reputable defence observers vary by close to 100% in cost estimates, how is the average Joe Canuck supposed to judge whether he's going to get good value for his tax dollar on the F-35?

And like I said earlier, it's not just the JSF that has this problem, as this article about the Rafale illustrates:

Pricing combat aircraft is notoriously complex, with deals often involving industrial offsets and seldom reflecting full aircraft development costs. While Dufour put the average cost of a Rafale at €50 million, or $64 million, and the Typhoon - a collaboration grouping Italy, Germany, Spain and Britain - at about £65 million, or $120 million, Kemp said both aircraft had been offered to Singapore and South Korea at about $95 million each, compared with a basic price tag of $45 million to $50 million for the Gripen.

That $45-50M for the Gripen intrigued me, since I'd seen a per unit cost of $76M here. Not to mention a per unit cost of $50M for the Rafale here. And just look at how the Eurofighter Typhoon people graphically sell their product's cost-effectiveness here. Confused yet?

The best explanation for these variations I've seen to date comes from Defense-Aerospace.com, in a 2006 piece entitled "Sticker Shock: Estimating the Real Cost of Modern Fighter Aircraft (pdf)." In that article, they make an important distinction between "Program Unit Cost" and "Unit Procurement Cost," which they define as follows:

• Program Unit Cost, obtained by dividing the total program cost by the number of aircraft produced. This is possibly the most significant benchmark, as it includes research and development costs as well as all related ancillary costs (support equipment, spare parts, documentation etc.);


• Unit Procurement Cost, obtained by dividing the cost of the latest production contract (thus excluding most R&D and support costs) by the number of aircraft contracted. In some respects, this can also be defined as the marginal cost of additional aircraft, and provides a benchmark for comparisons.

Their frustration in pursuing this exercise was evident in the study's Highlights and Conclusions:

The first and most obvious conclusion from this study (see Table 1) is that, in practice, it is virtually impossible to compare aircraft costs with a meaningful degree of accuracy.

Even government auditors, with access to classified data, are unable to agree on actual costs. For example, the officially quoted prices for the Eurofighter Typhoon vary by as much as 10% between Britain and Germany, while price estimates by the GAO, the Department of Defense and the US Air Force for both the JSF and the F-22 vary by as much as 50%.

Still, with that caveat, they were able to produce a very interesting chart (remembering it's from 2006 - click the graphic for a larger version):



I say 'interesting' because of the huge variation between the estimated marginal cost of obtaining aircraft once the production line is running and the total cost of putting a new aircraft from scratch, which is much, much higher. This should be to the benefit of Canada, which will apparently be buying 65 F-35's to replace our aging F-18 fleet. For the narrow purposes of this post, I'll refrain from commenting on whether 65 fighters will be adequate for our future needs, or whether we can even trust contract figures for future delivery (ahem, and ahem)...

So, my take-away from this little research project of mine is that I won't put too much faith in any costing estimates I see in the MSM reporting until a contract is signed. And even then, I'll have to look at what's included in the pricing (spares, service, training, etc) in order to make a fair assessment of whether it's a good deal or not.

Welcome to the spin-cycle, Damian...

Addendum: The one final point I forgot to make...

When LockMart says the F-35 will cost "about the same as current generation multi-role fighters," does that mean its Unit Procurement Cost will be around $62M, like the Rafale's Unit Procurement Cost? Or does it mean $118M like the Eurofighter? Because that's a pretty significant difference.

Or - and pardon my overt suspicion here - does it mean the F-35's Unit Procurement Cost (UPC) will be comparable to other fighters' Program Unit Cost (PUC)? That is to say, an apples-to-oranges sleight of hand that would hypothetically put a $115M (UPC) Lightning II up against a $95M (PUC) Super Hornet and call it a lot more plane for only a bit more money?

Enquiring minds want to know. And I doubt we'll get an answer any time soon.