The cost to build jet aircraft has increased in recent decades on the order of 7 to 12 percent, twice the rate of inflation, according to a new RAND study. Aircraft costs are so high that the Pentagon is buying fewer aircraft now in the peak years of defense spending than it during the “trough” years of a few decades ago.
In the lean defense spending year of 1975, the Pentagon bought 193 fighter aircraft. The Reagan defense buildup increased the number of fighters bought to 300 by 1985. The “peace dividend" years saw fighter procurement drop to 24 in 1995. Yet, in 2005, with soaring defense budgets, the Air Force and Navy together bought 66 fighters. “The escalating cost of aircraft and the downward cycle of procurement rates raises issues about the number of aircraft DOD will ultimately be able to procure and operate,” RAND says.
While labor costs per unit of aircraft have decreased as more production is outsourced, but that decline has been offset by a rise in material costs, particularly specialty metals. In 1970, material and equipment made up 45 percent of aircraft costs, now they make up 62 percent of total costs. Rising global demand for titanium, particularly from China, referred to as the “golf club” effect, is causing grief among aircraft manufacturers concerned about scarcity effects on manufacturing costs and schedules.
But the main culprit for escalating aircraft costs, RAND says, is that buyers have chosen quality over quantity and aided by a technological revolution in design tools, sophisticated electronic warfare systems and higher thrust jet engines, demand ever greater performance out of increasingly complex airframes. The front line F-16 fighter of the 1970s had 15 subsystems and 40 percent of its functions managed by computer software. The F-35 has 130 subsystems and more than 90 percent of its functions managed by software. Adding stealth to airframes is costly in both the CAD/CAM design, milling and fabrication and the use of radar-absorbing materials.
One of the problems the RAND researchers highlight is that the contraction and consolidation of the defense industrial base during the 1990s has left only two fighter/attack aircraft manufacturers. Trying to impose cost controls through competition is no longer really an option. Of greater concern is the ability of such a small manufacturing base to turn out innovative new designs. “With the F-35, F-22A and F/A-18E/F as the only high technology aircraft currently in production for the U.S. military, and no new design for manned aircraft on the horizon, the United States must remain concerned about who will design its next-generation aircraft,” the report says.
Opening up fighter manufacture to foreign competition would obviously help, RAND notes, but that’s an option neither Congress nor DOD will find acceptable. Fighter aircraft in Air Force and Navy inventories have no peer in the militaries around the world, yet manufacturers continue to push the technological and capability edge. That technological superiority does come at considerable unit cost, something RAND thought they should point out to the services.