Wednesday, July 31, 2013

F-35: Why full production will net lower cost airplanes

I know I've beaten this drum before, but it is something the cost critics would prefer to ignore.  Full production means a lower cost airplane (or pretty much anything else) because production efficiencies are realize and economies of scale kick in (which is why the approval of lots 6 and 7 are good news).  In a good op-ed, Brian McGuire, president of the Tooling and Manufacturing Association of Illinois makes the point once again:
In complex production projects like the F-35, substantial investments are made by suppliers in the program's developmental stages and are only recouped when the program moves into full production. Full production occurs when the supply chain becomes more efficient at reducing costs and economies of scale are realized. Last year, F-35 program costs dropped by $4.5 billion. F-35 suppliers have already paid about one-third of the cost overruns in the first three lots of production and have committed to paying 100 percent of any overrun of the contract ceiling in the fourth lot of production and beyond. Even the congressional watchdog agency, the Government Accountability Office, concluded that the program is moving in the right direction in a recent audit.

The cost issue cannot be truly addressed unless it is placed into a larger context of costs incurred versus costs saved. Once it is fully deployed, the F-35 will be used by the Air Force, Marines and Navy. The program would replace as many as seven legacy aircraft. The Pentagon projects that total maintenance costs for the legacy fleet would be four times the comparable maintenance costs of the F-35.
Note the other point he makes.  Cost overruns are being absorbed by the manufacturers.  That's a large incentive to not have any and that too leads to a less costly production cycle.  And there's no question that once deployed, the supply chain will be much less costly because you're not supporting multiple different aircraft types, all with different missions.

Finally, this program provides much needed jobs - high tech, good paying jobs, in a nation that is in sore need of them.  Seems like win-win to me.


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