F-35

What was that price again?
First, although the F-35 (and Boeing’s X-32) development efforts successfully validated many of the project’s technical challenges, the issue of cost remains unresolved. A combat aircraft with the features, capabilities, and weight of the F-35 typically costs at least $50 million, particularly if the U.S. military services follow their historical pattern of making numerous requirements changes along the way. After all, the F-22 began life with a $35-million price goal and now costs over three times as much. And if, for political reasons, Lockheed Martin is forced to share work with a co-prime or with numerous major subcontractors, the price could increase further as production arrangements grow more complicated.

	F-16

The technical challenge of designing an affordable plane in this class is not insurmountable. Lockheed Martin builds Block 50 F-16Cs for an advertised price of $25 million, one of the best bargains in the fighter market.

JSF’s target price began at $29 million-$34 million, which also offers tremendous value for money. However, in October 2001, DOD’s Defense Acquisition Board stated that JSF prices were now about $40 million for the CTOL (conventional takeoff and landing) USAF version, while the other versions would cost about $50 million. And because the F-35 is basically a single-engine F-22, there is every prospect it will follow its big brother’s price rise and eventually hit the $65-million mark.

If the F-35’s price increases, much of its competitive advantage will be eroded. This is a cost-sensitive market that resembles a pyramid. In the past two decades, there have been 26 export customers for fighters in the $25-million-$35-million range (F-16, Mirage 2000, Gripen, Harrier). There have been nine export customers for fighters in the $36-million-$45-million range (F/A-18A/B/C/D, and, notionally, Suk-hoi’s Su-27/30). Finally, there have been a mere three export customers for fighters in the $45-million-and-above range (F-15, Tornado).

Similarly, most of the current new, pricey twinjet fighters have been on the market for the past decade. A total of zero export market orders for the Eurofighter, F/A-18E/F, and Rafale have been received. Yet also over the last 10 years, the export market has absorbed over 400 $25-million F-16s, more than 130 $35-million Mirage 2000s, plus several dozen $30-million Gripens and AV-8B+s. In short, customers are still signing contracts for export-priced models, but have balked at going for the big, expensive planes.

	F-22

Unresolved funding question
The funding question is as difficult as the costs question. To avoid the now-famous budget train wreck, full F-35 production will have to wait until F-22 or Hornet E/F procurement ends. Until FY01, FY90 had been the last U.S. defense budget with funding for more than 50 combat aircraft. Even with the post-September 11 promise of additional defense spending, it is unlikely that the F-35 timetable can be kept to its present goal, with first deliveries in 2008. F-35 funding, in conjunction with the current acquisition programs, would raise tactical aircraft procurement to untenable new highs, unseen even at the peak of the 1980s defense buildup.

Hopes for F-35 procurement funding would be bolstered if the Navy and USAF find a way to make do with fewer F/A-18E/Fs and F-22s. But given the risks associated with JSF, they might be reluctant to cut their current aircraft procurement objectives.

The budgetary problem raises the question of whether the F-35 program can be stretched out, effectively putting the new plane on hold until the two services have reached their F-22 and F/A-18E/F procurement objectives. Certainly, such key aviation programs as the F-22 and RAH-66 Comanche have remained in the developmental wilderness for over 15 years. However, both of these programs enjoyed the unqualified support of their respective services. By contrast, F-35 represents something of a threat to the Air Force’s and Navy’s highest priorities, the heavier twinjets that pose fewer uncertainties and are more easily turned into multirole planes.

Without the support of the Air Force and Navy, a drawn-out F-35 R&D program budget would be a tempting target—over $1 billion a year, which could be used for something else. But there is no question that the Marine Corps is solidly behind F-35. And the current Afghanistan conflict might well remind the Navy that it should pursue a stealthy strike plane, which it abandoned after the A-12 disaster. If the current political situation were slightly different, strike aircraft would need to cross neutral and semihostile airspace, which would be easier with a stealthy plane.

Will anyone come to the party?
The final major question confronting the F-35 concerns the export market. The JSF program office has lined up numerous potential export customers, with promises of lucrative industrial involvement. The U.K. is already a full partner. Canada, Denmark, Italy, Norway, the Netherlands, and other countries have also signed up for varying levels of involvement.

But will these and other customers sign up for the complete engineering and manufacturing development and production phases? In October 2001, a Netherlands government report indicated that although JSF involvement would generate skills and business for the country’s aerospace companies, it might be prohibitively expensive if the country is locked into a fighter procurement choice for the next fighter acquisition. If F-35 costs rise, if the U.S. cancels the program, or if valuable workshares fail to materialize, participating countries will have few alternatives.

Still, there is some hope that international partners will keep the faith. After all, access to F-35 development and production work is a powerful draw for smaller companies. If F-35 production really does approach 5,000 aircraft, even a 1% industrial stake would be a better offer than anyone else is making. It could be said that JSF is as much an industrial strategy as it is a fighter, both for the export-hungry U.S. and for the potential target markets themselves.

Despite these questions, there is no doubt that the program is in a much better place than it was one year ago. First of all, the concept has been successfully demonstrated—both contractors have designed very impressive multirole medium fighters that can be adapted for conventional and vertical takeoffs and landings. Also, with the downselect, the program is rapidly acquiring an enthusiastic constituency, both in industry and government. And again, the post-September 11 defense spending environment is much more buoyant, even though much of the extra funding will not be spent on aircraft.

	F-18E/F

What the competition is doing
The F-35’s competitors are not waiting for any of these questions to be resolved. They are pressing ahead with efforts to make their own products more competitive, in terms of quality, industrial involvement, and price.

Predictably, Boeing foresaw the prospect of a JSF loss, and has been improving the F/A-18E/F program as much as possible. It is adding a new active electronically scanned array (AESA) radar into the design, and implementing a cost-cutting campaign. In September 2001, it announced a redesign of the forward fuselage to accommodate the new APG-79 AESA radar and other new systems while simultaneously reducing production costs. The objective price of a Block 2 F/A-18E/F with AESA is now $40 million, a reduction of over $10 million from today’s price.

This cost-cutting and product improvement effort means that the Navy will have a strong incentive to stick with its current plan to acquire about 500 Super Hornets, which would avoid the risk associated with an early transition to F-35 procurement. It also means the F/A-18E/F will remain as competitive as possible (for as long as possible) on the international market. Also, just as important, keeping the F/A-18E/F competitive gives Lockheed Martin an incentive to award Boeing a major F-35 workshare. Lockheed Martin would not want hostile competition from Boeing in every fighter contest, and a major F-35 role could co-opt the latter company. At the very least, it would blunt the efforts of a potential competitive enemy, at home and abroad.

	Rafale

Dassault has been pursuing a similar cost-cutting and product improvement effort with the Rafale. The company has begun development work on the F2 and F3 variants, which would also add an AESA. Conformal fuel tanks will enhance the Rafale’s range and payload. While there are no export sales so far, the French government has reemphasized its commitment to the program, having placed firm orders for 61 aircraft.

Most important, the aircraft’s cost rise has been halted, making this fourth-generation model only slightly more expensive than the F/A-18E/F. This is good, because a $60-million plane would not play in Dassault’s traditional markets. The Mirage series were all fine aircraft, but they were also low-cost enough to sell anywhere. The Mirage III/V, F1, and 2000 all received over two-thirds of their orders from export customers. The Rafale was in danger of becoming more of a Mirage 4000 program, which was canceled after it failed to secure a key Saudi order in the 1980s. If the price is $45 million, the Rafale would appeal to a broader market.

The Saab/BAE Gripen competes in almost the same niche as the F-16, and the team has had to make a huge effort to avoid the fate of the preceding Swedish fighter, the Draken. So far, only South Africa has signed on for new-build Gripens, but the upcoming Austrian contest offers considerable hope.

	Eurofighter

The Eurofighter/Typhoon team is doing less than the other players to compete on price. Rather, they are emphasizing the benefits of industrial cooperation, offering partnerships to Greece, Norway, and the Netherlands. They have also announced a product improvement program that, curiously, deemphasizes AESA technology. Nevertheless, the Tranche Three Eurofighter could offer a wide variety of new and improved systems.

While there have been no firm export sales so far, the Typhoon team is well aware that its fighter is the only player other than the F-35 to enjoy a substantial domestic market. This home market also provides the certainty that this aircraft will enjoy wide acceptance and numerous upgrade options. Greece still maintains that it is committed to a Eurofighter acquisition, although a purchase decision has been put off until after 2004.

In short, the F-35’s competitors are not waiting for the program’s myriad questions to be answered. They are prepared for the effort to be viable, although a completely successful F-35 program would probably cripple most of them in the long run. But the real problem will begin in the next decade. With a design baseline several decades later than any of the competing aircraft, upgraded versions of the F-35 will make the others look increasingly uncompetitive. So unless Boeing and/or the Europeans unite to develop a fifth-generation follow-on to the current design, they might be forced to exit the business by 2020.

Of course, it is equally possible that a technological revolution arising from missiles, uninhabited combat air vehicles, or spaceplanes could render manned fighters obsolete within a few decades. But then again, predictions of the fighter’s demise have been heard since 1935.