Friday, April 22, 2011

Why Should U.S. Taxpayers Subsidize the Sale of the F-35?,By Winslow Wheeler

Project On Government Oversight

Much has been said in the U.S. about the cost, schedule and performance woes of the F-35—but one thing that has largely slipped under the radar is the direct subsidy to foreign purchasers paid by U.S. taxpayers.
The F-35 sale to one of those purchasers—Canada—is a controversy in the upcoming elections there; the price the Canadian government asserts it will pay for each F-35 is at the heart of that controversy.  There are three major elements to the issue; one of those elements directly impacts U.S. taxpayers:
  1. It turns out that the $75 million price the Canadian government asserts it will pay for each F-35 is a "unit recurring flyaway" price, which does not include all the costs to actually buy an F-35, especially, for example, for the U.S. government. Seasoned observers of weapons costs in the U.S. fully appreciate that "recurring unit flyaway" prices are incomplete and are used almost exclusively by Lockheed-Martin, its consultants, and other advocates seeking to understate the full costs to acquire actual, flyable aircraft systems. 
  2. Canada will buy the "A" model of the F-35—the same version as for the U.S. Air Force, except for drogue refueling and perhaps other modifications the Canadians will require. As the Canadian government argues, the F-35A is the cheapest of the three major F-35 variants, but that price advantage does not explain the huge difference between the government's $75 million unit price and the $129-148 million unit cost that Canada's Parliamentary Budget Officer (a rough equivalent to our own Congressional Budget Office) estimates will be the actual cost of Canadian F-35As.
  3. Except for some minor caveats by the Parliamentary Budget Officer's report, there appears to be a consensus in Canada that they will be exempt from paying a full share of the cost to research, develop and test the F-35 in the U.S.  The Memorandum of Understanding Canada has signed purports to support that contention, and U.S. law, which ostensibly requires foreign weapon purchasers to pay the same price as the U.S., is so full of loopholes that there may be a legal basis for the contention. The politics of the matter in the U.S. may be a little different, however.
According to the Government Accountability Office's new report on the F-35, the cost to the U.S. to develop the F-35 has grown from $34.4 billion to $51.8 billion, and that 51 percent increase does not include the latest development cost overrun—up to about $56 billion and still counting. In other words, the development cost to U.S. taxpayers for each F-35 is about $21 million, and with the developmental and operational testing of the aircraft not currently scheduled to end until 2017, it is a virtual guarantee that more still problems and still more developmental costs will be discovered. (The costs to fully develop the "A" model may prove to be slightly less than for the even more complex "B" and "C" models.)
The exemption from these costs that Canada—and apparently all other foreign purchasers of the F-35—has been led to expect is yet another cost to U.S. taxpayers for this already unaffordable aircraft. It amounts to little more than a marketing edge and indirect subsidy for Lockheed, which apparently is not sacrificing corporate profits for foreign F-35 sales.
Thus far, this direct subsidy to foreign purchasers (at U.S. taxpayer expense) has not been a part of the controversies in the U.S. about the F-35's cost, schedule and performance. The matter would appear, however, to merit attention, especially as Congress starts to consider the 2012 defense budget.
It appears to be another hidden cost in a budget that—so far—has escaped truly rigorous scrutiny for expenses the U.S. taxpayer should know about and should not not be asked to bear. It remains to be seen if there will be any serious attempt by ether Congress or the Obama Administration to bring meaningful restraint to the U.S. defense budget; it certainly has not happened yet, as the plan for the future sees only more growth, while (counter-intuitively) our forces shrink and age. Extra and hidden costs, such as the F-35 sales subsidy, would come under scrutiny in an operative oversight system in the Congress and Defense Department, but it is an open question if such a system currently exists.
Winslow Wheeler is the Director of the Straus Military Reform Project at the Center for Defense Information.

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