From the U.S. Government Accountability Office, www.gao.gov Transcript for: F-35 Joint Strike Fighter Improved Cost Estimates Needed Description: Audio interview by GAO staff with Cary Russell, Director, Defense Capabilities and Management Related GAO Work: GAO-14-778: F-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates Released: September 2014 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It’s September 2014. The F-35 Joint Strike Fighter is intended to replace a variety of existing aircraft in the Air Force, Navy, and Marine Corps within the next four years. Sustaining the F-35 program over its lifecycle carries an estimated cost of approximately $1 trillion. A team led by Cary Russell, a director in GAO's Defense Capabilities and Management team, recently reviewed sustainment planning efforts for the F-35. GAO's Sarah Kaczmarek sat down with Cary to talk about what they found. [ Sarah Kaczmarek: ] The F-35 is DOD's most expensive weapons system. And your report even states it might not be affordable. Could you talk a bit more about that? [ Cary Russell: ] Sure. Well the F-35 Joint Strike Fighter is the most technologically advanced aircraft DOD has built to date. But all this technology has a very high price tag. The cost to design and build it is about $400 billion. And on top of that is another $1 trillion in estimated operating and maintenance costs over the lifecycle of the F-35. In fact, senior DOD officials have raised concerns about the affordability. And this does raise significant questions about the affordability of the F-35 over the long term. [ Sarah Kaczmarek: ] Let me ask you then, are DOD's current cost estimates a reliable expectation of how much money this program's actually going to cost? [ Cary Russell: ] Well we have found some significant limitations in the estimates, which raises questions about how much the program will ultimately cost. DOD has produced two different estimates. One by the Joint Program Office -- which is the office responsible for designing and building the aircraft. And the other by DOD's independent cost assessment office. And both of these estimates have come in around $1 trillion to sustain the F-35 over the lifecycle. We've looked at both of those estimates, and we've found that generally they're comprehensive in terms that they include all the types of costs that you might expect to see in such an estimate. However, we have seen some significant limitations as well. For example, DOD has not conducted uncertainty analyses on these estimates in order to gauge the level of confidence that the estimates actually reflect the most likely costs. It also hasn't established the range of likely costs or likely variances that might be expected. So as a result, DOD can't be sure how much risk there is, that the cost and the estimates will actually model the actual sustainment costs once the aircraft is operational. In fact, we've identified some weaknesses and several assumptions that could cause the actual cost to go higher than the estimate. A good example of that is fuel rates -- or fuel burn rates. A significant cost driver in the estimate is the cost of fuel. The F-35 uses an awful lot of fuel, and the cost estimates have an assumption for the fuel burn rates that will be expected over the various wide range of operations that the aircraft is expected to perform. So basically what we're saying is that some of the more fuel-intensive operations, such as landing on a carrier, taking off on a carrier, or high-speed maneuvers haven't yet been realized. That means that the actual fuel cost could be significantly higher than what we are seeing in the estimates. [ Sarah Kaczmarek: ] So does GAO then have a calculation or an estimate of what we think the sustainment costs would be? Or how much they may be off from what DOD is reporting? [ Cary Russell: ] No that's very difficult to do. We weren't able to go through and assess a benchmark of what the actual cost would be. We've looked at the individual assumptions, but because some of those costs haven't materialized yet, it's very difficult to pinpoint an exact cost. Let me give you a good example about the fuel burn rate. We know that a 5% increase, based on the current data of fuel usage can translate into a cost of over $4 billion over the lifecycle of the F-35, just for the Air Force fleet alone. So we're able to get some of those specific costs, but we can't tell across the board what the total cost is going to be. [ Sarah Kaczmarek: ] What recommendations is GAO making, then, to help control costs here? [ Cary Russell: ] Well we've identified several recommendations to DOD as it continues to develop its sustainment strategy. For example, we're recommending that DOD improve the reliability of its sustainment cost estimates by conducting uncertainty analyses and addressing the weaknesses and assumptions that we identified. We're also recommending that DOD establish affordability constraints, so it's in a better position to know exactly what the military services can afford with regards to operating and maintaining the F-35. And also we're making several recommendations to address some risks that we identified to affordability. [ Sarah Kaczmarek: ] Finally, what do you see as the bottom line of this report? [ Cary Russell: ] Well, as we've talked, the F-35 is the most expensive and most sophisticated aircraft the DOD has developed to date. So having an affordable and executable sustainment strategy is critical. Right now, DOD has some limitations in its ability to know exactly what the sustainment costs of this F-35 are going to be to maintain and operate over its lifecycle. And is also limited in being able to know how much it can really afford. But having this information is extremely important to decision makers, both inside DOD and outside, in order to effectively monitor and oversee this highly complex program [music]. [ Background Music ] [ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional watchdog, the U.S. Government Accountability Office.