How To Calculate F-35 Unit Cost And Operating Costs–Vexed Questions

Farnborough Air Show » 2012
July 8, 2012, 6:55 AM

According to the latest GAO report, the program acquisition unit cost (PAUC) of the F-35 will be $161 million. That figure includes amortization of the development cost across the expected production run. But how much should acquisition officials reckon to pay for their F-35s, going forward? Of course, that will depend what F-35 variant they buy, in what quantity and when.

The GAO report also gives a forecast for the average production unit cost (APUC): $137 million. This includes the amortized cost of support equipment, plus initial spares and training, and various other costs that a customer will incur before its shiny new jets are ready to fly in operations. Again, the APUC assumes that very large production run.

But Lockheed Martin maintains that the unit recurring flyaway cost (URFC) is the best yardstick. The company told AIN: “Each customer has a unique set of requirements and options for their aircraft and the way they intend to support and use them. Since not all customers want the same options, the best place to begin and compare to other aircraft is the basic cost of the aircraft, which is established through the URFC.”

Others disagree. In a comment posted online to a previous AIN story on F-35 unit costs, reader Geoff Koh said: “The more complex, stealthy and high-tech the platform is, the more the ‘other’ portions associated with procuring a jet (that is, other than simple URFC) will end up costing the customer.”

In the latest U.S. selected acquisition report (SAR), the average URFC is given as $78.7 million for the F-35A, $106.5 million for the F-35B and $87 million for the F-35C,in 2012 dollars. That assumes a total production run of 2,443 aircraft for the U.S. plus 697 for the international partners and 19 for Israel.

The forecasting of F-35 operating costs is also contentious. The GAO report noted that the sustainment affordability target for the F-35A ($35,200 per flight hour) is much higher than the current cost for the F-16 it will replace ($22,500 per flight hour). But program officials told the GAO that there are substantive differences between legacy and F-35 operating assumptions, which complicate direct cost comparisons.

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SMSgt Mac
on July 10, 2012 - 12:24am

Kudos. You honestly expand on a difficulty where many have seen opportunity to sow confusion.

PAUC among other things includes RDT&E and all costs associated with production of the item such as hardware/software, systems engineering (SE), engineering changes and warranties plus the costs of procuring technical data, training, support equipment, and initial spares. But there is one aspect of PAUC that can make it VERY inappropriate for telling people what something WILL cost them: PAUC includes ‘sunk’ cost.

Most notably, in the F-35’s case, it includes the percentage of the RDT&E, Production, Engineering, and Technical Data costs that have already been incurred. Since the primary production line and RDT&E capabilities for the F-35 are already stood up, and all the suppliers' engineering and production capabilities are running in place waiting for the higher production demand, this has to represent a huge chunk of APUC that is already sunk cost.

Try explaining to the man in the street that the PAUC went up because of conscious decisions to defer higher rates of production and stretch development to ‘reduce risks’ and NOT because the Contractor is jacking up the price. People’s eyes will glaze over if you try and explain everything that goes into the PAUC or APAC: Many of the costs tacked on to the PAUC would make no sense to the average citizen because we don’t buy things like a government does. Example: The Man in the Street doesn’t add the cost of a new garage to the cost of his new 4x4 because it is too big to put in the garage he already has. He pays the money and then observes he has bought a new 4&4 AND a new garage.

While PAUC is considered ‘true costs of the plane by ‘some’, it isn’t. It is just an aggregation of a lot of direct costs that are then booked against each plane by dividing by the number of units. Obviously it includes the costs of infrastructure, new technology, and new knowledge. Much of it will invariably be used to advantage elsewhere – it just gets BOOKED against the program of record.

On the other hand URF is something people will understand because it’s the dollar cost number to buy ‘just one’. Just like the store done the street.

If you must, use both numbers. But only PAUC requires extensive explanation to prevent misrepresentation. And once you have significant sunk costs, to be completely honest with the public, you should also provide the PAUC for producing NO more units, including cancellation costs. If the requirement demands a new program after a cancellation, add the estimated PAUC for that program as well. Let the public will see the true cost tradeoffs involved.

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