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What was that price again?
First, although the F-35 (and Boeingââ¬â¢s X-32) development efforts successfully validated many of the projectââ¬â¢s technical challenges, the issue of cost remains unresolved. A combat aircraft with the features, capabilities, and weight of the F-35 typically costs at least $50 million, particularly if the U.S. military services follow their historical pattern of making numerous requirements changes along the way. After all, the F-22 began life with a $35-million price goal and now costs over three times as much. And if, for political reasons, Lockheed Martin is forced to share work with a co-prime or with numerous major subcontractors, the price could increase further as production arrangements grow more complicated.
F-16
The technical challenge of designing an affordable plane in this class is not insurmountable. Lockheed Martin builds Block 50 F-16Cs for an advertised price of $25 million, one of the best bargains in the fighter market.
JSFââ¬â¢s target price began at $29 million-$34 million, which also offers tremendous value for money. However, in October 2001, DODââ¬â¢s Defense Acquisition Board stated that JSF prices were now about $40 million for the CTOL (conventional takeoff and landing) USAF version, while the other versions would cost about $50 million. And because the F-35 is basically a single-engine F-22, there is every prospect it will follow its big brotherââ¬â¢s price rise and eventually hit the $65-million mark.
If the F-35ââ¬â¢s price increases, much of its competitive advantage will be eroded. This is a cost-sensitive market that resembles a pyramid. In the past two decades, there have been 26 export customers for fighters in the $25-million-$35-million range (F-16, Mirage 2000, Gripen, Harrier). There have been nine export customers for fighters in the $36-million-$45-million range (F/A-18A/B/C/D, and, notionally, Suk-hoiââ¬â¢s Su-27/30). Finally, there have been a mere three export customers for fighters in the $45-million-and-above range (F-15, Tornado).
Similarly, most of the current new, pricey twinjet fighters have been on the market for the past decade. A total of zero export market orders for the Eurofighter, F/A-18E/F, and Rafale have been received. Yet also over the last 10 years, the export market has absorbed over 400 $25-million F-16s, more than 130 $35-million Mirage 2000s, plus several dozen $30-million Gripens and AV-8B+s. In short, customers are still signing contracts for export-priced models, but have balked at going for the big, expensive planes.
What the competition is doing
The F-35ââ¬â¢s competitors are not waiting for any of these questions to be resolved. They are pressing ahead with efforts to make their own products more competitive, in terms of quality, industrial involvement, and price.
Predictably, Boeing foresaw the prospect of a JSF loss, and has been improving the F/A-18E/F program as much as possible. It is adding a new active electronically scanned array (AESA) radar into the design, and implementing a cost-cutting campaign. In September 2001, it announced a redesign of the forward fuselage to accommodate the new APG-79 AESA radar and other new systems while simultaneously reducing production costs. The objective price of a Block 2 F/A-18E/F with AESA is now $40 million, a reduction of over $10 million from todayââ¬â¢s price.
This cost-cutting and product improvement effort means that the Navy will have a strong incentive to stick with its current plan to acquire about 500 Super Hornets, which would avoid the risk associated with an early transition to F-35 procurement. It also means the F/A-18E/F will remain as competitive as possible (for as long as possible) on the international market. Also, just as important, keeping the F/A-18E/F competitive gives Lockheed Martin an incentive to award Boeing a major F-35 workshare. Lockheed Martin would not want hostile competition from Boeing in every fighter contest, and a major F-35 role could co-opt the latter company. At the very least, it would blunt the efforts of a potential competitive enemy, at home and abroad.
Rafale
Dassault has been pursuing a similar cost-cutting and product improvement effort with the Rafale. The company has begun development work on the F2 and F3 variants, which would also add an AESA. Conformal fuel tanks will enhance the Rafaleââ¬â¢s range and payload. While there are no export sales so far, the French government has reemphasized its commitment to the program, having placed firm orders for 61 aircraft.
Most important, the aircraftââ¬â¢s cost rise has been halted, making this fourth-generation model only slightly more expensive than the F/A-18E/F. This is good, because a $60-million plane would not play in Dassaultââ¬â¢s traditional markets. The Mirage series were all fine aircraft, but they were also low-cost enough to sell anywhere. The Mirage III/V, F1, and 2000 all received over two-thirds of their orders from export customers. The Rafale was in danger of becoming more of a Mirage 4000 program, which was canceled after it failed to secure a key Saudi order in the 1980s. If the price is $45 million, the Rafale would appeal to a broader market.
The Saab/BAE Gripen competes in almost the same niche as the F-16, and the team has had to make a huge effort to avoid the fate of the preceding Swedish fighter, the Draken. So far, only South Africa has signed on for new-build Gripens, but the upcoming Austrian contest offers considerable hope.
Eurofighter
The Eurofighter/Typhoon team is doing less than the other players to compete on price. Rather, they are emphasizing the benefits of industrial cooperation, offering partnerships to Greece, Norway, and the Netherlands. They have also announced a product improvement program that, curiously, deemphasizes AESA technology. Nevertheless, the Tranche Three Eurofighter could offer a wide variety of new and improved systems.
While there have been no firm export sales so far, the Typhoon team is well aware that its fighter is the only player other than the F-35 to enjoy a substantial domestic market. This home market also provides the certainty that this aircraft will enjoy wide acceptance and numerous upgrade options. Greece still maintains that it is committed to a Eurofighter acquisition, although a purchase decision has been put off until after 2004.
In short, the F-35ââ¬â¢s competitors are not waiting for the programââ¬â¢s myriad questions to be answered. They are prepared for the effort to be viable, although a completely successful F-35 program would probably cripple most of them in the long run. But the real problem will begin in the next decade. With a design baseline several decades later than any of the competing aircraft, upgraded versions of the F-35 will make the others look increasingly uncompetitive. So unless Boeing and/or the Europeans unite to develop a fifth-generation follow-on to the current design, they might be forced to exit the business by 2020.
Of course, it is equally possible that a technological revolution arising from missiles, uninhabited combat air vehicles, or spaceplanes could render manned fighters obsolete within a few decades. But then again, predictions of the fighterââ¬â¢s demise have been heard since 1935.
