Lifecycle Weapon Costs Eating a Hole in Pentagon’s Budget
One of the most dreaded phrases in the Pentagon weapon-procurement world, “lifecycle costs,” is at the center of far-reaching budget decisions by the U.S. Air Force.
In the military weapons realm, lifecycle costs can amount to 70 percent of all expenses associated with a piece of hardware over the entire time that it is in service. They include maintenance, crew training, upgrades and repairs. Within the Air Force’s budget, these costs are rising, and eating into procurement and research accounts.
The Air Force, which has seen its overall budget squeezed by 12 percent since 2009, is seeking to slow down the rampant growth of its “operations and maintenance” account. O&M spending now consumes $44 billion of the Air Force’s $154 billion budget. By comparison, the budget for weapons procurement is $18 billion, and $17 billion for research and development of new technology.
Like the other branches of the military, the Air Force has had a tough time containing O&M expenses in part because of the high cost of repairing and maintaining a diversity of aging aircraft fleets.
To curb these costs, the Air Force wants to consolidate its inventory into fewer aircraft makes and models. In this case, giving the entire fleet a hair cut doesn’t work because it doesn’t deal with the O&M growth, said Assistant Secretary of the Air Force for Financial Management Jamie Morin.
“The dirty secret in building a budget is, if you have a fleet of 100 aircraft of a type and you retire 50, you are not going to save anything close to 50 percent of your cost.” because of the huge fixed costs associated with each type of airplane, Morin said at a Stimson Center forum in Washington, D.C.
To eliminate maintenance and support cost, he said, “We took entire fleets if possible.”
The recommended cutbacks have run into a buzz saw of opposition on Capitol Hill. Air Force Secretary Michael Donley and Chief of Staff Gen. Norton Schwartz have defended the plan to divest smaller niche fleets such as the C-27J cargo and a large chunk of the A-10 close-support force in order to free up money to fund multi-role systems such as the F-35A Joint Strike Fighter.
“We emphasize common configurations which can be seen in the adjustments to the C-5 force structure and the C-17 mobility fleets and in ongoing efforts to seek common configuration within the F-22 and F-15C fleets,” Donley told the House Armed Services Committee.
The Air Force wants to jettison nearly 230 fighter, mobility, and surveillance aircraft in fiscal year 2013, with a goal of retiring 286 aircraft over the next five years. The savings: $8.7 billion.
Lifecycle costs of weapon systems are rarely discussed compared to the high visibility and media attention given to procurement price tags. A rare exception was the heated debate in recent months over the Joint Strike Fighter’s trillion-dollar lifecycle bill. JSF is known for its nearly $400 billion cost for the Defense Department’s planned buy of nearly 3,000 airplanes. But the disclosure of the program’s estimated support costs over a 50-year lifespan raised eyebrows.
“That’s a lot of money spent to sustain an aircraft,” Morin said.
The trillion-dollar calculation might not be completely accurate, he said, but the "fact that we do those kinds of estimates is valuable because it concentrates management’s attention,” he said.
In the future, he said, “You will see programs evaluated in terms of lifecycle costs. … Obviously the trillion-dollar number for JSF is a very long-term horizon and then-year dollars, not inflation adjusted,” he said. “It concentrates the mind, though.” The F-35, indeed, is replacing most of the military’s tactical fighter fleet, “so the cost is not a surprise over 50 years,” said Morin. “As an analyst I would say if you are doing an estimate over 50 years, you should use a constant dollars number."
Morin said the maintenance and support of advanced “low observable” stealth aircraft tend to always cost more than projected. “The F-35 program has not been as successful as originally planned in holding down operations and support (O&S) costs,” he said.
Congressional auditors noted that the mandatory price-estimates reports that the Pentagon must submit annually on its acquisition programs either distort or ignore lifecycle costs. “The true costs of major U.S. weapon systems are buried,” said a Government Accountability Office report that was written for the House Armed Services Committee’s readiness subcommittee.
“The acquisition of a weapon system today involves a significant financial commitment to that system over its entire life cycle, a period that may last several decades,” GAO said. “The program office for the F-35 Joint Strike Fighter, the newest aircraft being acquired for the Air Force, Navy, and Marines, estimated in 2010 that life-cycle O&S costs were about $1 trillion, in addition to an estimated $379.4 billion in total acquisition costs.”
Since 1969, Congress has mandated the Defense Department to provide a “selected acquisition report” on the cost, schedule, and performance of major defense acquisition programs. “Although much of the data reported within the SAR is acquisition related, in 1985 Congress amended the SAR statute to require that a full lifecycle cost analysis also be included, and subsequently specified that this lifecycle cost analysis include estimated O&S costs,” GAO said. More “consistent and reliable reporting of estimated weapon system O&S costs” is needed, the report said. “Improvements in the reporting of these data could provide a more complete picture of the potential total financial commitment being made to these systems over a period lasting many decades.”